problem set 6

problem set 6 - Jason Rozenberg Problem Set 6 1a) $1000 1b)...

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Problem Set 6 1a) $1000 1b) (1000/1000)^1/1 – 1 1c) 1000/952.38^1/1 – 1 = 5% 1d) 1000/1050^1/1 – 1= -4.76% 2a) 231.38/376.9^1/10 – 1 = 4.76% 2b) 231.38/333.33^ 1/10 – 1 = -3.58 2bii) The market interest rate would be around -4% because it would be around the yield to maturity and negative because the bond has a negative relationship with the market interest rate. 3) Interest rate is greater for long-term bonds than for short-term bonds because time is valueable, and having to wait longer for the bond to mature is more of a risk that the bond will lose much value and a longer time for the bond to mature. If interest rates were the same than everyone would be purchasing short term bonds because they would be able to reinvest the money that they make. 3b) Interest rate is greater for discount bonds than for coupon bonds because the discount bond has more risk which increases the demand for coupon bonds. The discount bonds get more interest to attract consumers and because there is more risk involved. 4)
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This note was uploaded on 04/08/2008 for the course ECO 340 taught by Professor Dighe during the Spring '08 term at SUNY Oswego.

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problem set 6 - Jason Rozenberg Problem Set 6 1a) $1000 1b)...

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