S1 - SCHOOL OF BUSINESS UNIVERSITY OF CALIFORNIA AT...

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S CHOOL OF B USINESS U NIVERSITY OF C ALIFORNIA AT R IVERSIDE B US 106 A VINASH V ERMA S OLUTION TO H OMEWORK 1 + G RADING P OLICY THE CREDIT FOR EACH PART DEPENDS MAINLY ON DEMONSTRATION OF CONCEPTUAL UNDERSTANDING . T HEREFORE IF A PARTICULAR PART OF THE QUESTION HAS BEEN CORRECTLY SET UP , YOU WILL GET ENTIRE CREDIT FOR THAT PART EXCEPT ONE POINT . O NE POINT IS RESERVED FOR GETTING THE RIGHT NUMERICAL ANSWER . Y OU WILL NOT BE PENALIZED FOR YOUR ERRORS TWICE . T HUS , IF YOU MADE AN ERROR IN PART ( i ), AND USED THAT ERRONEOUS ANSWER AS AN INPUT TO PART ( ii ), YOU WILL NOT BE PENALIZED AGAIN SO LONG AS PART ( ii ) WAS SET UP AND ANSWERED CORRECTLY OTHERWISE . 1. Ms. Juanita Fotheringay-Murgatroyd has $900,000 available to invest. The discount factor for four years is 0.891, while the discount factor for seven years is 0.8919. (i). Work out r 4 , the interest rate on risk free investments with a term to maturity of four years. By definition,
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