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SILABO – GERENCIA EMPRESARIAL
Universidad Iberoamericana
UNIBE
Due Date
:
March 10, 2011
Deliver hard copy at the beginning of class and send the electronic file through email.
Note: Use as exercises the study problems of chapter 6 that are in the photocopies of the
book
Foundations of Finance
that is available at the photocopy office located in the
basement of the FRA1 building at UNIBE.
In all the problems set the student must provide a clear mathematical argument for the
response. Otherwise a partial credit will be given for correct answers.
Lecture 10: The Valuation and Characteristics of Bonds
Study Problem Exercises: 23 Exercises
Exercises: 75, 711, 712, 713, 716, 717, 718, 719
Note: For exercise 75 assumes face value of $1,000
Exercise 6.2. Book: Mathematics of Money
Exercises: 1, 3, 4, 10, 12, 13, 14, 16, 18, 20, 26, 27, 36, 37, 38
Page
1
of
13
FINANCIAL MATHEMATICS
HOMEWORK 4: PART 1
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View Full Document 75
a.
Series A:
Value (V
b
)
=
∑
=
+
12
1
t
12
12
(1.05)
$1,000
(1.05)
$85
Value (V
b
)
=
∑
=
+
12
1
t
12
12
(1.08)
$1,000
(1.08)
$85
Value (V
b
)
=
∑
=
+
12
1
t
12
12
(1.12)
$1,000
(1.12)
$85
12
=
5%
8%
12%
85
1000
→
ANSWER
1,310.21
1,037.68
783.20
Series B:
Value (V
b
)
=
∑
=
+
1
1
t
1
1
(1.05)
$1,000
(1.05)
$85
Value (V
b
)
=
∑
=
+
1
1
t
1
1
(1.08)
$1,000
(1.08)
$85
Value (V
b
)
=
∑
=
+
1
1
t
1
1
(1.12)
$1,000
(1.12)
$85
1
Page
2
of
13
=
5%
8%
12%
85
1000
→
ANSWER
1,033.33
1,004.63
968.75
b. Longerterm bondholders are locked into a particular interest rate for a longer period of time
and are therefore exposed to more interest rate risk
711
711.
a.
Value
Par Value
$1,000.00
Coupon
$
100.00
Required Rate of Return
0.12
Years to Maturity
15
Market Value
$
863
.78
b.
Value at Alternative Rates of Return
Required Rate of Return
0.15
Market Value
$
707
.63
Required Rate of Return
0.08
Market Value
$1,171
.19
Page
3
of
13
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View Full Document c.
As required rates of return change, the price of the bond changes, which is the
result of "interestrate risk"
Thus, the greater the investor's required rate of
return, the greater will be his/her discount on the bond. Conversely, the less his/
her required rate of return below that of the coupon rate, the greater the
premium will be.
d.
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This note was uploaded on 06/22/2011 for the course ALL 105 taught by Professor Laus during the Spring '11 term at FIU.
 Spring '11
 Laus

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