Sample Exam 1b Solutions

Including the time 0 origination fee as an outflow we

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Unformatted text preview: the time 0 origination fee as an outflow, we are left with the following equation that can be solved for r: [ ( ) The monthly r is 1.64%, so the true interest rate expressed as an APR is 1.64*12 = 19.7% Question 23c: After making the 12th payment, Michael will still owe the bank 36 payments. Find the PV of the remaining payments: [ ( ) Question 24a: The purchase price of the bond at time 0 is: [ ( ) The price of the bond when sold at time 10 (note: 10 payments are remaining) is: [ ( ) So, the cash flows are: C0 = -119.08 C1…C9 = 3 C10 = 100 + 3 = 103 Question 24b: [ ( ) ( ) r is .987%, which is 1.97% expressed as an APR...
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This note was uploaded on 09/22/2012 for the course FIN 360 taught by Professor Wang during the Fall '08 term at University of Arizona- Tucson.

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