Assignment 2

# Assignment 2 - Econ 500 Fall 2011 Z Janko DEPARTMENT OF...

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1 DEPARTMENT OF ECONOMICS Econ 500 – Money and Banking Fall 2011 Assignment 2 Assigned Sep. 14 th , 2010 DUE Sep 29 th , 2010 Answer all of the following questions as best as you can. TYPE your answers to the short answer problem questions (except for any equations or graphs). Note: try to keep your answers to 100 words or less. Covers chapters 4 and 5. 1. Chapter 4, Q8 from textbook: To pay for college, you have just taken out a \$1000 government loan that makes you pay \$126 per year for 25 years. However, you do not have to start making payments until you graduate from college TWO years from today . Why is the yield to maturity (TODAY) necessarily LESS than 12%? (Hint: remember that the yield to maturity (TODAY) is exactly 12% on a normal (standard) \$1000 fixed payment loan, in which you pay \$126 per year for 25years starting next year). 2. Consider a coupon bond with face value of \$1000, coupon payments of \$100, 4 years to maturity. The price today is \$1000. The yield to maturity i

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Assignment 2 - Econ 500 Fall 2011 Z Janko DEPARTMENT OF...

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