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MA373 S10 Quiz 5-1

MA373 S10 Quiz 5-1 - b Calculate f[1.0,2.5 3 An insurance...

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QUIZ 5 Math 373 Spring 2010 1. Chupp Corporation pays a quarterly dividend of 10 later today. Future dividends are expected to increase at a rate of 2% per quarter. Calculate the price of Chupp Stock (prior to the payment of the dividend today) in order to yield 12% compounded quarterly.
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2. You are given the following spot interest rates: t r t 0.5 2.0% 1.0 2.4% 1.5 2.9% 2.0 3.6% 2.5 4.5% 3.0 5.0% a. Calculate the yield rate on a 3 year bond maturing for 1200 with annual coupons of 50 assuming it is priced using these spot interest rates.
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Unformatted text preview: b. Calculate f [1.0,2.5] . 3. An insurance company is obligated to pay a two year increasing annuity. The annuity pays 100,000 at the end of one year and 150,000 at the end of two years. Amanda wants to exactly match the cash flows from this annuity using the following two bonds: a. Bond A is a one year bond maturing for 1000 with annual coupon rate of 7.5% b. Bond B is a two year bond maturing for 1500 with an annual coupon of $100. Calculate the amount of each bond that Amanda should purchase....
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