Complete the following problems in either Microsoft Word or Excel. Your work must be organized. Highlight your final answer. Chapter 2: 2-9: a. The cost of a new automobile is $10,000. If the interest rate is 5%, how much would you have to set aside now to provide this sum in five years? b. You have to pay $12,000 a year in school fees at the end of each of the next six years. If the interest rate is 8%, how much do you need to set aside today to cover these bills? c. You have invested $60,476 at 8%. After paying the above school fees, how much would remain at the end of the six years? 2-11: You are quoted an interest rate of 6% on an investment of $10 million. What is the value of your investment after four years if interest is compounded: a. Annually? b. Monthly? or c. Continuously? 2-12: What is the PV of $100 received in: a. Year 10 (at a discount rate of 1%)? b. Year 10 (at a discount rate of 13%)? c. Year 15 (at a discount rate of 25%)? d. Each of years 1 through 3 (at a discount rate of 12%)? Chapter 3: 3-3: In February 2009 Treasury 6s of 2026 offered a semiannually compounded yield of 3.5965%. Recognizing that coupons are paid semiannually, calculate the bond’s price. 3-4: Here are the prices of three bonds with 10-year maturities: Bond Coupon % Price % 2 81.62 4 98.39 8 133.42 If coupons are paid annually, which bond offered the highest yield to maturity? Which had the lowest? Which bonds had the longest and shortest durations? 3-7: Look again at Table 3.4. Suppose that spot interest rates all change to 4%—a “flat” term structure of interest rates. a. What is the new yield to maturity for each bond in the table? b. Recalculate the price of bond A?
