3232-F09-mt1 - ME 3232 Midterm 10/24/09, GC 122, 1:30-3:30...

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ME 3232 Midterm 10/24/09, GC 122, 1:30-3:30 PM Name: ___________________________ Closed book and notes. 1 crib sheet (both sides), calculator, and drawing tools allowed. 1. Bud Weiser purchased a new 10 year to maturity corporate bond at par for $10000. The issuing corporation promised to pay the bondholder $500 interest on the face value of the bond every 6 months. (a) If Bud sells the bond after 2 years when the prevailing bond annual coupon rate is at 6%. How much should he expect to sell the bond for? (b) Suppose after 3 years that Bud sold the bond for $9,800, what would be the overall yield on his investment. (You can use interpolation between integer interest rates to assist in solving this problem)
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2. A young professional was contemplating his future on the eve of his 30 th birthday, and decided that he would like to retire early at age 55. However his corporate pension can’t start until his 60 th birthday at the earliest. He decided that he would celebrate his 30 th birthday opening an investment account where he would invest a fixed amount each year at 12% projected annual interest. Moreover he decided that he would make each year’s payment on his birthday starting on his 30 th birthday. His goal is to make the final
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This note was uploaded on 11/19/2010 for the course ME 3232 taught by Professor Lyon during the Fall '10 term at University of New Brunswick.

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3232-F09-mt1 - ME 3232 Midterm 10/24/09, GC 122, 1:30-3:30...

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