HW2__Solutions.2006

# HW2__Solutions.2006 - MS&E 242 Investment Science Prof...

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MS&E 242 Investment Science HW #2 Solutions Prof. James Primbs October 10, 2006 Problem 3.1 (Answer is wrong in back of book) Set 000 , 25 \$ = P , 84 12 ) 7 ( = = n , 12 / 07 . 0 = r Now, + = n r r A P ) 1 ( 1 1 , so 32 . 377 \$ ) 1 ( 1 1 = + = n r rP A Problem 3.4 First find the monthly payment M on a \$203,150 loan at the APR of 8.083 % using the annuity formula as 360 360 12 08083 . 1 150 , 203 12 08083 . 1 12 08083 . 1 + × = + M Solve for M to find M= \$1,502.41. Next find the initial balance for this monthly payment at the interest rate of 7.875 % 13 . 209 , 207 \$ 12 07875 . 1 1 1 ) 12 / 07875 . 0 ( 1502 360 = + = B The total fees are the difference between the initial balance and the amount of the loan Fees= \$ 207,209.13-\$203,150= \$4,059.13 Problem 4.2 We are given the current spot rate curve

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HW2__Solutions.2006 - MS&E 242 Investment Science Prof...

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