METU, FEAS
ECON 311
SA : Hatice
İ
pek
Fall 2009
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?
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 Spring '10
 elif
 Interest Rates

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