302fall11pp1ans UD - UNIVERSITY OF DELAWARE DEPARTMENT OF...

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UNIVERSITY OF DELAWARE PROFESSOR DAVE WHARTON DEPARTMENT OF ECONOMICS FALL 2011 ECON 302 PRACTICE PROBLEM SET 1: ANSWERS QUESTIONS AND PROBLEMS FROM THE TEXTBOOK: Chapter 4 - # 3, 4, 5, 6, 7, 8, & 12 # 3) Solve for PV in the equation: PV = [$1,100/(1+.1)] + [$1,210/(1+.1) 2 ] + [$1,331/(1+.1) 3 ] = $3000 # 4) Since the price is greater than the PV, the actual yield to maturity will be less than 10%. Specifically, we can use the YTM spreadsheet to see that the actual yield = 1.94% # 5) Solve for (i) in the following equation: $2,000 = [$100/(1+i)] + [$100/(1+i) 2 ] + [$100/(1+i) 3 ] + [$100/(1+i) 4 ] + [$100/(1+i) 5 ] + [$100/(1+i) 6 ] + [$100/(1+i) 7 ] + [$100/(1+i) 8 ] + [$100/(1+i) 9 ] + [$100/(1+i) 10 ] + [$100/(1+i) 11 ] + [$100/(1+i) 12 ] + [$100/(1+i) 13 ] + [$100/(1+i) 14 ] + [$100/(1+i) 15 ] + [$100/(1+i) 16 ] + [$100/(1+i) 17 ] + [$100/(1+i) 18 ] + [$100/(1+i) 19 ] + [$1100/(1+i) 20 ] You can shorten this to: $2,000 = [$100/(1+i)] + [$100/(1+i) 2 ] + …+ [$100/(1+i) 19 ] + [$1100/(1+i) 20 ] U s i
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302fall11pp1ans UD - UNIVERSITY OF DELAWARE DEPARTMENT OF...

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