Chapter_2_H_W_Solutions

# Chapter_2_H_W_Solutions - Problem 2.4 FV = Ccfw(1 r)t 1 r M...

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10/30/2008 1 Problem 2.4 FV = C {[(1 + r) t – 1] / r } + M FV = \$700,000[(1+0.062) 8 – 1) / 0.062] + \$10M FV = \$16,978,160.38 . Problem 2.8 P B = C{1 – [1/(1 + r/2)] 2xn } / r/2 + M / (1+r/2) 2xn P B(A) = \$40{1 – [1/(1 + 0.07/2)] 2x9 } / 0.07/2 + \$1,000 / (1+0.07/2) 2x9 = \$527.59 + \$538.36 = \$1,065.95 P B(B) = \$45{1 – [1/(1 + 0.09/2)] 2x20 } / 0.09/2 + \$1,000 / (1+0.09/2) 2x20 = \$828.071+ \$171.929= \$1,000.00 Problem 2.8 (Continued) P B(C) = \$30{1 – [1/(1 + 0.10/2)] 2x15 } / 0.10/2 + \$1,000 / (1+0.10/2) 2x15 = \$461.174+ \$231.377= \$692.55 P B(D) = \$1,000 / (1+0.08/2) 2x14 = \$333.48 Problem 2.9 a. P B = \$30 A 10 yrs 15% + \$1,000 / (1+0.15/2) 2x10 = \$541.25 @ r = 16% b P B = \$509.09 . % Δ = (\$509.09 – \$541.25) / \$541.25 = –5.94%. c. P B = \$30 A 10 yrs 5% + \$1,000 / (1+0.5/2) 2x10 = \$1,077.95 @ r = 6% b P B = \$1,000 % Δ = (\$1,000.00 – \$1,077.95) / \$1,077.95 = –7.23% There is more volatility in a lower interest-rate environment because there was a greater fall –7.23% vs. –5.94%

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Chapter_2_H_W_Solutions - Problem 2.4 FV = Ccfw(1 r)t 1 r M...

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