Review Questions _ Interest Theory - Part 3
1. Steve bought 100 shares of stock on March 1 and sold the stock 6 months later. The
bid and ask prices were:
Bid Ask
March 1 60.25 60.50
September 1 68.50 68.75
The brokers commission was X%. Steves gain was 7
Homework - Theory of Interest - Part 3
l. The bid and ask prices of stocks A and B are as follows:
Bid Ask
Stock A 99.50 100.00
Stock B 75.25 76.00
You buy one share of stock A and sell two shares of stock B. The brokers
commission is 0.3%
What is your ne
Homework - Theory of Interest (Part 1)
1. Money accumulates in a fund at an effective annual interest rate of 1 during the rst
five years and at an effective annual interest rate of 2i thereafter.
A deposit of 1 is made into the fund at time 0. It accumul
Homework 2 Theory of Interest
which earns an annual effective rate of 6%. At the end
1. 1000 is deposited into Fund X,
1113 an additional 100 dollars is withdrawn from the
of the first year, the interest earned p
fund.
At the end of the tenth year, the fu
Review Problems Theory of Interest (Part 2)
for 5 years. The payments earn
are invested at the end of each year
1. Payments of 1000
effective rate of 10%.
interest at an annual
ested at an annual effective rate of 6% in the first 4 years and
The interest
Homework 2
due Thursday, February 6 2014
1 Suppose I wish to purchase a perpetuity, whose payment at the end of n years is Pn , where
P0 = 0, P1 = 1, and
4
1
Pn = pn1 + pn2
5
4
for n 2. How much is it worth at time 0? [Hint: let A be the present value of
Review Questions Interest Theory - Section 1
1. At an effective annual interest rate of i, each of the following two sets of payments has
a present value of K.
(I) A payment of 121 immediately and another payment of 121 at the end of one year.
(II) A paym
Homework 3
due Thursday, February 27 2014
1 [15pts] We take out a loan for $10,000 that accrues interest at an annual eective rate of 5%.
Rather than making level payments, weve worked out a deal with the bank where the size
of each payment is three times
Net Working Capital (NWC) = Current assets (CA) Current liabilities (CL)
Cash Flow from Assets (CFFA)= Operating cash flow Net capital spending NWC
Operating cash flow = EBIT + depreciation taxes
Operating cash flow = Net Income + depreciation (if no int
Homework 6
Wednesday, October 21st
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6.1. A 35 year loan is to be repaid in equal annual installments. The amount of interest paid
in the 8th installment is $135. The amount of interest paid in the 22nd installment is $108.
Calculate the a
Homework 5
Thursday, October 8th
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5.1. An annuity pays $1 today, $2 in one year, $3 in two years, . $20 in nineteen years. The
annuity will pay $20 for 30 years (the rst payment being when t = 19). Then the payments
will decrease. The pay
Homework 7
Wednesday, October 28th
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7.1. A $1, 000 par value bond with 9% coupons payable semiannually is purchased for $1, 300.
The yield to the purchaser is 6% convertible semiannually. If the same bond were redeemable
at 120% of par va
Homework 8
Wednesday, November 11th
Name:
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8.1. The following are the current prices of zero-coupon bonds that have redemption value
$1000:
Term to Maturity
Price
1
2
3
$943.40
x
$805.08
(a) If the one year forward rate deferred 1 year is 8%, d
Homework 9
Tuesday, November 24th
Name:
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9.1. A bond with 7.5% annual coupons will mature at par on June 30th , 2006. Determine
the Macaulay duration of the bond on December 31st , 2004, if the eective annual rate of
interest is 5.5% per annum.
Homework 10
Tuesday, December 8th
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10.1. Max enters into a 6 month long forward contract with a forward price (strike price)
of $100. Shirley enters into a 6 month short forward contract with a dierent underlying
asset and with a forward
Homework 1
Thursday, September 3rd
Name:
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1.1. Money accumulates in a fund at an eective annual interest rate of i during the rst 5
years and at an eective annual interest rate of 2i thereafter. A deposit of $1 is made into
the fund at time 0.
Homework 3
Thursday, September 17th
Name:
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3.1. An investment requires an initial payment of $10, 000 plus annual payments of $1, 000 at
the end of each of the rst ten years. Starting at the end of the eleventh year, the investment
returns ve e
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