Solutions to Chapter 5 Homework
Total points =6
$1,000 1.04 = $1,040.00 interest = $40
1.
$1,040 1.04 = $1,081.60 interest = $1,081.60 $1,040 = $41.60
After 10 years, your account has grown to $1,000 (1.04)10 = $1,480.24.
Interest earned in 10th year = $1
Chapter 6 Homework Problems, BUS 106
2.
a.
Coupon rate = 6%, which remains unchanged. The coupon payments are fixed at
$60 per year.
b. When the market yield increases, the bond price will fall. The cash flows are discounted
at a higher rate.
c. At a lowe
BUS 106, Chapter 12 Homework Solution
6.
a. Call the weight in the S&P 500 w and the weight in T-bills (1 w). Then w must satisfy
the equation:
w 10% + (1 w) 4% = 8% w = 2/3
Therefore, invest two-thirds in the S&P 500 and one-third in T-bills.
b. To form
Chapter 11 HW Solution
Introduction to Risk, Return, and the Opportunity Cost of Capital
3. If investors become less willing to bear investment risk, they will require a higher risk
premium to compensate them for holding risky assets. Security prices of r