An investment pays 3000 in one year, 2000 at the end of the secondyear and 1000 at the end of the third year. It is priced to yield 8% annually.Find a) the current priceb) the exact change in value if rates go down to 7.95%c) the approximate change in price using the first order derivatived) the approximate change in price using both the first order derivative andsecond order derivatives

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An investment pays 3000 in one year, 2000 at the end of the second year and 1000 at the end of the third year. It is priced to yield 8% annually. Find a) the current price b) the exact change in value if rates go down to 7.95%

An investment pays 3000 in one year, 2000 at the end of the second year and 1000 at the end of the third year. It is priced to yield 8% annually. Find a) the current price b) the exact change in value if rates go down to 7.95%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

An investment pays 3000 in one year, 2000 at the end of the second
year and 1000 at the end of the third year. It is priced to yield 8% annually.
Find a) the current price
b) the exact change in value if rates go down to 7.95%
c) the approximate change in price using the first order derivative
d) the approximate change in price using both the first order derivative and
second order derivatives

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