Homework Problem - Nice examples (2)

# Homework Problem - Nice examples (2) - r 2.75 3-Year Yield...

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Present Value of Investment Interest rate 9% Year 0 1 2 3 4 5 6 Ann Pmt \$0 \$150 \$175 \$200 \$250 \$300 \$500 Lump Sum Total CFs \$0 \$150 \$175 \$200 \$250 \$300 \$500 NPV \$1,109.56 =NPV(B17,C20:H20) Future Value of Investment FV = =FV(B18,H20,,B25) \$1,860.85 =1109.56(1.68) 1109.56(1+0.09) 6

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\$137.61 Year 1 =150/1.09 \$147.29 Year 2 \$154.44 Year 3 \$177.11 Year 4 \$194.98 Year 5 \$298.13 Year 6 \$1,109.56 =175/(1.09) 2 = 175/1.19 =200/(1.09) 3 = 200/1.30 =250/(1.09) 4 = 250/1.41 =300/(1.09) 5 = 300/1.54 =500/(1.09) 6 = 500/1.68
IP1 2.00% IP2 3.20% IP3 (and up) 3.60%
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Unformatted text preview: r* 2.75% 3-Year Yield 6.25% 5-Year Yield 6.80% 3-Year Bond IP3 = (IP1 + IP2 + IP3)/3 2.93% (2% + 3.2% + 3.6%)/3 Yield = r* + IP + MRP 6.25% = 2.75% + 2.93% + MRP3 0.57% (6.25% - 2.75% - 2.93%) = MRP3 5-Year Bond IP5= (IP1 + IP2 + IP3 + IP4 + IP5)/5 3.20% (2% + 3.2% + 3.6% + 3.6% + 3.6%)/5 Yield = r* +IP +MRP 6.8% = 2.75% +3.20% + MRP5 0.85% (6.8% - 2.75% - 3.20%) = MRP5 (MRP5 - MRP3) 0.28% (0.85% - 0.57%)...
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