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Unformatted text preview: 220:301:08 Money and Banking Department of Economics Homework #1 Fall 2010 Rutgers University Part I Ch. 4 p. 38 Exercises 1, 2, 5, 6, 10 p. 39 Exercises 1, 2 p. 43 Exercises 1, 3 p. 45 Exercises 1, 3 Ch. 5 p. 57 Exercises 1, 5, 7 p. 60 Exercises 1, 3, 4, 5 Ch. 6 p. 69 Exercises 1, 2, 4 Handout H2 BartervMoney.pdf Questions 1-4 Part II Problem 1) In class we learned that current yield is i = C Pv . We also know that there are cases when current yield is not the same as yield to maturity. For an annuity that stops payment after T years, we found the relationship between current yield and yield to maturity to be i = i [ 1- (1 + i )- T ]- 1 when we compound annually. This means that current yield always overestimates the yield to maturity of any terminating stream of income. Lets now consider the case where the asset pays an annual coupon, C , but has a par value, M , where M is a lump-sum amount to be received at the assets maturity. That is, after T years, the asset pays M in addition to the final coupon payment.in addition to the final coupon payment....
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- Spring '11