FIN 7000 Problem Set 2
Drawback 1: Fill within the desk under for every of the following rates of interest: Compounding PV of $1000 Case Said Annual Price Intervals Per Yr Efficient Annual Price at t = 2 1 .12 1 2 .12 2 three .12 four four .12 12 5 .12 24 6 .12 infinity Drawback 2: The efficient annual charge is three% (i.e., re = .03). What's the said charge for compounding semi-annually that's related to this efficient charge? That's, remedy for rs such that 1+re = (1+(rs/2))2 given re = .03. Drawback three: Contemplate the next info on a yield curve (the place t = zero is now) Time (in years) to Maturity (TTM) Efficient Annual Price .01 .015.02.0225.0235 Half 1: Utilizing this yield curve, calculate the current worth of the next cost streams: $100 at t = 1,$100 at t = 2,$100 at t = three,$100 at t = four,$100 at t = 5,$100 at t = 1 and $100 at t = four$200 at t = 2 and $200 at t = 5 Half 2: Additionally utilizing the above yield curve, calculate the ahead charge for the one-year yield subsequent yr at t = 1. In case you take your reply to b above divided by your reply to a above after which subtract 1, do you get the identical reply? Half three: Contemplate the next two methods for getting a return over three years: Technique 1: Make investments for 3 years on the three yr charge; Technique 2: make investments on the two-year charge for 2 years and then roll over into the one-year charge in two years. You possibly can calculate a ahead charge for the one-year charge in two years (at t = 2) by contemplating the one-year charge in two years that would make you detached between Technique 1 and Technique 2. What's that ahead charge?