Problem Set 2 Assignment

Problem Set 2 Assignment - Economics 330 – Money and...

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Unformatted text preview: Economics 330 – Money and Banking Fall 2010 Dr. Neri Problem Set 2 – Due within the first 5 minutes of lecture on Wednesday September 22, 2010. Late submissions and E-mail submissions will not be accepted. You must show your calculations. Your name must be in INK! 1a) You are offered a 3-year government coupon bond with face value of $1,000. The bond entitles you to receive a coupon payment of $80 per year for three years. You will receive the first payment one year from today. The probability of default is zero. You are certain that all three coupon payments and the face value will be made in full and on time. The risk-free interest rate is 8%. Calculate the price of this bond. Show your work. 1b) Now suppose a risky private company issues a 3-year coupon bond with face value of $1,000. The bond entitles you to receive a coupon payment of $80 per year for three years. You will receive the first payment one year from today. Investors require a risk premium of 1 percentage point to buy the first payment one year from today....
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Problem Set 2 Assignment - Economics 330 – Money and...

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