FIN3300 Solution Ch7 (M 0712)-1

FIN3300 Solution Ch7 (M 0712)-1 - Solution Chapter 7:...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Solution Chapter 7: Interest Rates and Bond Valuation Page 227 Questions: 9, 10, 11, 22, 23, 26 9. The approximate relationship between nominal interest rates ( R ), real interest rates ( r ), and inflation ( h ) is: R = r + h Approximate r = .07 – .038 =.032 or 3.20% The Fisher equation, which shows the exact relationship between nominal interest rates, real interest rates, and inflation is: (1 + R ) = (1 + r )(1 + h ) (1 + .07) = (1 + r )(1 + .038) Exact r = [(1 + .07) / (1 + .038)] – 1 = .0308 or 3.08% 10. The Fisher equation, which shows the exact relationship between nominal interest rates, real interest rates, and inflation is: (1 + R ) = (1 + r )(1 + h ) R = (1 + .047)(1 + .03) – 1 = .0784 or 7.84% 11. The Fisher equation, which shows the exact relationship between nominal interest rates, real interest rates, and inflation is: (1 + R ) = (1 + r )(1 + h ) h = [(1 + .14) / (1 + .09)] – 1 = .0459 or 4.59% 22. To find the number of years to maturity for the bond, we need to find the price of the bond. Since we already have the coupon rate, we can use the bond price equation, and solve for the number of years to maturity. We are given the current yield of the
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/18/2011 for the course FINANCE Fin3300 taught by Professor Mosley during the Summer '10 term at CSU East Bay.

Page1 / 3

FIN3300 Solution Ch7 (M 0712)-1 - Solution Chapter 7:...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online