Extra Problems 4c

Extra Problems 4c - A. 4. Investor A buys a zero growth...

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ACTSC 231 Extra Problem Set 4 c 1. Consider the following securities: (a) A 26-week $100 T-bill sells for a price of $98.50 (b) A 52-week $100 T-bill (c) A 1 year $5000 10% government bond with semiannual coupons, sells for a price of $5194.38. 2. A $500 bond pays coupons at 8% semiannually and is redeemble at par in 1 year. i (2) 0 ;: 5 = 7% and i (2) 0 ; 1 = 7 : 5% , the rate as a nominal rate compounded semi-annually. 3. You are given the following quoted prices on Mar. 5, 2003. (The quoted coupon is always annual, but is paid semiannually. I.e. for issue A, a coupon of 4 is paid twice a year) Issue Maturity Coupon Price A Feb 5, 2004 8 103.62 B Aug 5, 2003 0 98.53 C Feb 5, 2004 0 96.44 (Note that there are 181 days between Feb 5 ± Aug 5) (b) Use the zero coupon bonds (issue B ± C) to verify your price in part
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Unformatted text preview: A. 4. Investor A buys a zero growth stock, which pays annual dividends of $8, at a price to yield i = 7% . After receiving the 10th dividend investor A sells the stock to investor B to yield i = 8% . (a) Find the IRR for investor A. (b) Find the e/ective annual yield rate earned by investor A if each of the dividends earned i = 5% in a saving account. (c) Repeat part b) assuming an annual growth rate of 1% (e.g. D = 8 ; D 1 = 8 : 08 ; ::: ). 5. Given that the e/ective annual spot rate is i ;k = : 048 + : 002 k , &nd f 2 ; 5 : 6. You are given: 6-month T-bills sell for $95 1 1-year T-bills sell for $90 1.5-year bonds with 8% coupons paid semiannually sell for $95.80 2-year bonds with 10% coupons paid semiannually sell for $98.55 Calculate the 6-month, 1-year, 1.5-year and 2-year annual e/ective spot rates. i ;: 5 = 100 95 2...
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Extra Problems 4c - A. 4. Investor A buys a zero growth...

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