solution of sample exam1

# solution of sample exam1 - PV 1 t r =(349 67 320 1 3-1 = 0...

This preview shows pages 1–3. Sign up to view the full content.

ECONOMICS 389 – Solutions of the Sample Midterm Spring 2010 Part I 1. higher 2. end 3. coupon 4. yield to maturity 5. decrease or fall or go down Part II 1. c FV 4 - FV 3 = 1 , 000(1 + 0 . 08 / 4) 16 - 1 , 000(1 + 0 . 08 / 4) 12 = 104 . 55 2. a EAR = (1 + APR 2 ) 2 - 1 = (1 + 0 . 15 2 ) 2 - 1 = 0 . 1556 3. b PV perpetuity - PV annuity = 1 , 000 0 . 08 - 1 , 000[ 1 0 . 08 - 1 0 . 08(1 + 0 . 08) 30 ] = 12 , 500 - 11 , 257 . 78 = 1242 . 22 4. b 5. c FV = 100(1 + 0 . 1 4 ) 1 2 = 134 . 49 6. d PV = 20 , 000 (1 + 0 . 08) 21 = 3973 . 11 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
7. c APR = 0 . 014 × 12 = 0 . 168 8. b PV = 1 , 000 1 . 1 + 2 , 000 1 . 1 2 + 3 , 000 1 . 1 3 = 909 . 09 + 1 , 652 . 89 + 2 , 253 . 94 = 4 , 815 . 92 9. b real rate = 1 + nominal rate 1 + inflation rate - 1 = 1 . 12 1 . 04 - 1 = 0 . 0769 10. b current yield = 1 , 000 × 0 . 06 800 = 0 . 075 Part III 1. Table Present Value Future Value Periods Interest Rate \$500 657.97 7 years 4% \$150 \$201.59 10 years 3% \$320 \$349.67 3 years 3% \$ 2,099.13 \$2,430 3 years 5% a. Future Value FV = PV (1 + r ) t = 500(1 + . 04) 7 = 657 . 97 b. Number of periods FV = PV (1 + r ) t (1 + r ) t = FV PV (1 + 0 . 03) t = 201 . 59 / 150 Then read from Appendix Table A.2 in the row where this value occurs. This is 10 years. c. Interest Rate FV = PV (1 + r ) t (1 + r ) t = FV PV 1 +
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: PV ) 1 t r = (349 . 67 / 320) 1 / 3-1 = 0 . 03 d. Present value PV = FV (1 + r ) t = 2 , 430 (1 + 0 . 05) 3 = 720 2 2. PV = C [ 1 . 07-1 . 07(1 + 0 . 07) 30 ] = 100 , 000 C = 8 , 058 . 64 3. Price = PV = 2 , 000 + 400[ 1 . 12 12-1 . 01(1 + 0 . 01) 48 ] = 17 , 189 . 58 4. Coupon = 1 , 000 × . 09 = 90 P-1 = PV = 90[ 1 . 06-1 . 06(1 + 0 . 06) 3 ]+ 1 , 000 (1 + 0 . 06) 3 = 240 . 57+839 . 62 = 1 , 080 . 19 P = PV = 90[ 1 . 06-1 . 06(1 + 0 . 06) 2 ]+ 1 , 000 (1 + 0 . 06) 2 = 165+890 = 1 , 055 r.r. = 90 + 1 , 055-1 , 080 . 19 1 , 080 . 19 = 0 . 06 5. a. (104+22/32)%*1000=1046.875 b. (104+21/32)%*1000=1046.5625 c. ﬁnd the r where 1046 . 875 = 35 / (1 + r ) + 35 / (1 + r ) 2 + 1000 / (1 + r ) 2 d. 35/1046.875 3...
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern