Suppose the term structure of risk-free interest rates is as shown below. 1 year 1.98 Term Rate (EAR %) 2 years 2.35 3 years 2.63 5 years 3.23 7 years 3.84 10 years 4.13 20 years 4.99 a. Calculate the present value of an investment that pays $5,000 in two years and $2,000 in five years for certain. b. Calculate the present value of receiving $400 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year four would be the average rate in year three and year five) c. Calculate the present value of receiving $2,300 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.) a. Calculate the present value of an investment that pays $5,000 in two years and $2,000 in five years for certain. The present value of the investment is $(Round to the nearest dollar.) b. Calculate the present value of receiving $400 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year four would be the average rate in year three and year five.) The present value of the investment is $ (Round to the nearest dollar.) c. Calculate the present value of receiving $2,300 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.) (Round to the nearest dollar.) The present value of the investment is $
Suppose the term structure of risk-free interest rates is as shown below. 1 year 1.98 Term Rate (EAR %) 2 years 2.35 3 years 2.63 5 years 3.23 7 years 3.84 10 years 4.13 20 years 4.99 a. Calculate the present value of an investment that pays $5,000 in two years and $2,000 in five years for certain. b. Calculate the present value of receiving $400 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year four would be the average rate in year three and year five) c. Calculate the present value of receiving $2,300 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.) a. Calculate the present value of an investment that pays $5,000 in two years and $2,000 in five years for certain. The present value of the investment is $(Round to the nearest dollar.) b. Calculate the present value of receiving $400 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year four would be the average rate in year three and year five.) The present value of the investment is $ (Round to the nearest dollar.) c. Calculate the present value of receiving $2,300 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.) (Round to the nearest dollar.) The present value of the investment is $
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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Transcribed Image Text:Suppose the term structure of risk-free interest rates is as shown below:
Term
Rate (EAR %)
1 year
1.98
2 years
2.35
3 years
2.63
5 years
3.23
←
7 years
3.84
10 years
4.13
20 years
4.99
a. Calculate the present value of an investment that pays $5,000 in two years and $2,000 in five years for certain.
b. Calculate the present value of receiving $400 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example,
the rate in year four would be the average rate in year three and year five)
c. Calculate the present value of receiving $2,300 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.)
a. Calculate the present value of an investment that pays $5,000 in two years and $2,000 in five years for certain.
The present value of the investment is $. (Round to the nearest dollar.)
b. Calculate the present value of receiving $400 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example,
the rate in year four would be the average rate in year three and year five.)
The present value of the investment is $. (Round to the nearest dollar.)
c. Calculate the present value of receiving $2,300 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.)
The present value of the investment is $. (Round to the nearest dollar.)
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