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Quiz1 Generic without solution 2001

Quiz1 Generic without solution 2001 - 2 c Suppose that the...

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FINANCE 100 Corporate Finance Professor Roberts Sample Quiz #1 NAME: SECTION: Question Maximum Student Score Question 1 70 Question 2 30 TOTAL 100 Instructions: ¾ You may bring one 8.5x11 sheet of paper to the exam with writing on both sides. ¾ Round all numbers to the 0.01 place. ¾ The time allotment for the exam is 30 minutes. ¾ Please check that the exam contains 4 pages including cover. 1
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Question 1: (60 points) Consider the following prices for zero coupon bonds with $100 face value: Maturity Price 1 $95.2381 2 $88.9996 3 $82.7849 a) What is the yield to maturity of these bonds if the yield is compounded annually? (15 points) Maturity Yield 1 2 3 b) What is the forward rate for a one-year loan, one year from today? (15 points)
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Unformatted text preview: 2 c) Suppose that the forward rate that you observe in the market is lower than the one you computed in part (b). How would you take advantage of this discrepancy? Explain in detail the transactions that you would conduct and the corresponding cashflows. (40 points). 3 4 Question 2: (30 points) Find the price of a 10% Government coupon bond that pays semiannual coupons, matures in exactly 3 years and 6 months, and face value of $100. The yield to maturity is 8% p.a. compounded semiannually . The bond has just paid its semi-annual coupon, hence you need to price it assuming that the first coupon that you will receive is due in exactly 6 months....
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