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Economics 466/566 Bruce C. Dieffenbach University at Albany Present Value—Homework Exercises Using Excel 1. a) The spreadsheet shows the computations. One spreadsheet shows the numerical results, whereas the other shows the underlying formulas. In the formulas, a dollar sign \$ signifies an absolute reference to a column or a row. For the commands Copy or Edit Fill, an absolute reference is not changed; but, without the dollar sign, the row or column reference adjusts. b) When R = .10, the present value is 1000. This result is intuitive. If one pays 1000 for the bond and holds it to maturity, evidently the rate of return is 10 per cent per year. The yield to maturity is thus 10 per cent . It follows that the present value of the payments discounted at R = .10 must be 1000. c) When R = .09, the present value is 1064.18. When R = .11, the present value is 941.11. As the interest rate rises, the present value falls; future payments are discounted more heavily, so the pre- sent value is less.

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