ps1 - METU, FEAS ECON 311 SA : Hatice pek TA: Nutiye Sekin...

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METU, FEAS ECON 311 SA : Hatice İ p e k F a l l 2 0 0 9 TA: Nutiye Seçkin Inst: Elif Akbostanc ı PROBLEM SET I 1. Are the following statements true (T) or false (F)? a. The concept of present value is based on the common sense notion that a dollar paid to you in the future is less valuable to you than a dollar today. b. If the current price is less than face value, P B < F, an investor will be subject to capital loss by holding the bond until maturity. Hence the yield to maturity i is smaller than current yield C/P B , which in turn is smaller than the coupon rate C/F c. Current bond prices and interest rates are positively related; when the interest rate rises, the price of bond rises, and vice versa. d. The return on a bond will necessarily equal to the interest rate on that bond. 2. If interest rate is 8%, what is the present value of $1000 that will be paid after two years? 3. If you put $1000 per year into the bank at 4% interest rate, after 40 years how much would your savings be? 4.
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This note was uploaded on 05/26/2010 for the course ECON 311 taught by Professor Elif during the Spring '10 term at Middle East Technical University.

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ps1 - METU, FEAS ECON 311 SA : Hatice pek TA: Nutiye Sekin...

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