E120
Homework 2 Solutions
1. 1 + rr =
1+r
1+i
= (1 + 0.03) (1 + 0.05) = 1 + r = r = 0.0815
2. Note that these are spot rates.
(a) P V =
1000
(1+0.0241)2
2000
(1+0.0332)5
+
= 2652.15
1
(b) The spot rate in year 4 is 2 (2.74% + 3.32%) = 3.03%, so that
PV =

E120
Homework 5
Due 08/05/2010
Problem 1:
A die is rolled twice. Let X equal the sum of the outcomes, and let Y equal the rst
outcome minus the second.
1. Are X and Y independent random variables?
2. Compute Cov(X,Y).
3. What is the lesson to be learned h

E 120: Principles of Engineering Economics
Midterm Exam
July 27, 2009
Professor Ilan Adler
Name: _ (please print)
SID:
_
Unless explicitly specified, assume the usual model of an existence of a bank in which
one can borrow/deposit unlimited amounts for a

E120 Principles of Engineering Economics
Summer 2007
Practice Final
Problem 1
You believe that one month from now the XYZ Company will pay a dividend of $2 on its
common stock. Thereafter you expect to receive dividends every quarter. The dividends are
ex

E 120: Principles of Engineering Economics
Midterm Exam
July 18, 2011
Professor Ilan Adler
(please print)
Name:
SID:
Any communication with other students during the exam (including showing, viewing or sharing any writing) is strictly prohibited. Any vio

E 120: Principles of Engineering Economics
Practice Final Exam
May 06, 2011
Instructor: Nguyen Truong
Name:
(please print)
SID:
Any communication with other students during the exam (including showing,
viewing or sharing any writing) is strictly prohibit

E120
Homework 6
Due 08/12/2011
Problem 1:
Suppose that there are 2 assets with r1 = 0.20, 1 = 0.40, r2 = 0.10, 2 = 0.25, 12 = 0.05.
1. If rf = 0.02, what are the market portfolio return and variance? What are the
corresponding weights?
2. If rf = 0.05, wh

E120
Homework 2
Due 07/08/2011
Problem 1:
If the rate of ination is 5%, what nominal interest rate is necessary for you to earn a
3% real interest rate on your investment?
Problem 2:
Suppose the term structure of risk-free interest rates is as follow: 1 y

E120
Homework 3
Due 07/15/2010
Problem 1:
A 30-year bond with a face value $1000 has a coupon rate of 5.5%, with semiannual
payments.
1. What is the coupon payment for this bond?
2. Draw the cash ows for the bond on a timeline.
Problem 2:
Assume that a bo

E120
Homework 1
Due 07/01/2010
Problem 1:
Calculate the future value of $2000 in
1. 5 years at an interest rate of 5% per year.
2. 10 years at an interest rate of 5% per year.
3. 5 years at an interest rate of 10% per year.
4. Why is the amount of interes

E120
Homework 3
Due 07/15/2010
Problem 1:
A 30-year bond with a face value $1000 has a coupon rate of 5.5%, with semiannual
payments.
1. What is the coupon payment for this bond?
2. Draw the cash ows for the bond on a timeline.
Problem 2:
Assume that a bo

E120
Homework 4
Due 07/29/2010
Problem 1:
Let Z be a random variable with probability mass function p() such that p(0) = 0.1,
p(1) = 0.3, p(2) = 0.3, p(3) = 0.1, and p(4) = 0.2.
1. Find E[Z]
2. Find E[Z E[Z]
3. Find E[Z2 ]
4. Find E[Z3 ]
5. Find E[sin(Z)

E120
Homework 3
Due 07/15/2010
Problem 1:
A 30-year bond with a face value $1000 has a coupon rate of 5.5%, with semiannual
payments.
1. What is the coupon payment for this bond?
2. Draw the cash ows for the bond on a timeline.
Problem 2:
Assume that a bo

E120
Midterm Solutions
1. (a) (1 + rm )12 = 1 + EAR = (1 +
(b)
p
1+rm
+ . +
p
(1+rm )360
12% 4
).
4
Solving we get rm = 0.990163405%.
= 100, 000, we nd p =
100,000
98.0838792
= $1019.5355323.
(c) If we were to have an advanced calculator, we could have qu