Cornell University
Gregory Besharov
Economics 3330 Midterm
October 20, 2008
1.
True/False/Explain
(4 points)
Please answer two of the following three questions.
If more than two are answered, only the first two will
be graded. State whether the sentence is true or false and explain your answer.
All credit is based on the
explanation. Please limit your explanations to no more than two sentences each—additional sentences will
not be considered.
a. (2 points) According to the expectations theory, if the yield curve is downwardsloping then the market
must expect a decrease in shortterm rates.
b. (2 points) If two bonds have the same yield to maturity and the same maturity date, then they must have
the same price.
c. (2 points) When one of the stocks in a marketvalue weighted index splits, the index divisor must be
adjusted.
2.
Tuition
(6 points)
You will be paying tuition at the end of each of the next two years.
In the first year the expense is $10,500,
and in the second year it is 5% higher.
The discount rate is 5% and that is also the return on bonds.
a) (1 point) What will be the tuition expense at the end of the second year?
b) (1 point) What is the present value of your tuition expenses?
c) (2 points) What is the duration of your expenses?
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 Fall '08
 MBIEKOP
 Economics, Net Present Value, 1%, $100, $10,500

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