Topic 0 and 1 Warm Up Problems

Topic 0 and 1 Warm Up Problems - Warm up Problems for Topic...

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Warm up Problems for Topic 0 (Discounting) and Topic 1 (Bonds) **These questions are designed to represent elementary principles, and are NOT representative of problems that you will find on any exams. 1. You are required to pay $100,000 five years from now. You talk to your bank, and they will give you an interest rate of 3% per annum. How much money do you need to invest today in order to meet the required future payment, 1a) if the bank compounds annually? 1b) if the bank compounds monthly? 1c) if the bank compounds continuously? 2. You have just closed on a new house. The price of the home is $250,000. If you can secure a 30-year mortgage at 9% compounded monthly, what is your monthly payment? 3. You are offered an 8% coupon bond with a face value of $1000. The bond has three years to maturity, the coupons are paid semiannually, and the yield to maturity is 10%. What price are you willing to pay for this bond? 4. The current two-year spot rate in the market is 6%. You are offered a forward rate, to invest your money for one year starting
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Topic 0 and 1 Warm Up Problems - Warm up Problems for Topic...

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