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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 14 Part II Problem 1) In class we learned that current yield is ˆ 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 ˆ 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. Let’s now consider the case where the asset pays an annual coupon, C , but has a par value, M , where M is a lumpsum amount to be received at the asset’s 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
 Shefflin
 Economics, Rutgers University, Banking Department of Economics

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