The formula below tells us how to obtain the maturity value on a simple discount loan if we are given the proceeds, the discount rate, and the term. M = T-dRT If a loan's annual simple discount rate is 3.34%, how many years would it take for the debt to double? (This is called the doublin time of a loan). Round your answer to the nearest tenth of a year. Hint: divide both sides of the equation by P. If M is twice as much as P, what should the fraction on the left-hand side equal?

The formula below tells us how to obtain the maturity value on a simple discount loan if we are given the proceeds, the discount rate, and the term. M = T-dRT If a loan's annual simple discount rate is 3.34%, how many years would it take for the debt to double? (This is called the doublin time of a loan). Round your answer to the nearest tenth of a year. Hint: divide both sides of the equation by P. If M is twice as much as P, what should the fraction on the left-hand side equal?

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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Suppose the term structure of risk-free interest rates is as shown here: a. Calculate the present value of an investment that pays $1,000 in 2 years and $4,000 in 5 years for certain. b. Calculate the present value of receiving $900 per year, with certainty, at the end of the next 5 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 4 would be the average rate in year 3 and year 5.) c. Calculate the present value of receiving $2,700 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) 2 years 3 years 5 years 7 years 1 year 2.06 2.44 2.64 3.22 3.74 Term Rate (EAR, %) Print Done 10 years 4.25 20 years 5.09 I X t cent.)
Assume that at time 0 a sum L is lent for a series of n yearly payments. The rth payment, of amount xr, is due at the end of the rth year. Let the effective annual interest rate for the rth year be ir. Give an identity which expresses L in terms of the xr and ir.
Derive an equation to find the end-of-year future sum F that is equivalent to a series of n beginning-of-year payments B at interest rate i. Then use the equation to determine the future sum F equivalent to six B payments of $100 at 8% interest.
The formula below tells us how to obtain the maturity value on a simple discount loan if we are given the proceeds, the discount rate, and the term. If a loan's annual simple discount rate is 7.56%, how many years would it take for the debt to double? (This is called the doubling time of a loan). Round your answer to the nearest tenth of a year. Hint: divide both sides of the equation by P. If M is twice as much as P, what should the fraction on the left-hand side equal?
Find the effective yield on a discount loan with the given discount rate r and the time. (Round your answer to two decimal places.) r = 2%, 2 months
If the compounding frequency is monthly and the discount factor=0.62026, what is the value of the corresponding annual interest rate? What is the corresponding continuous compounding annual interest rate if the discount factor remains at 0.62026?
What size loan must we take today with a 14% compound interest rate to have end-of-year payments of $1400, $1320, $1240, $1160, and $1080 for the next five years, respectively? In other words, if you take out a loan today, and after making all five payments, above, the loan is paid off, what is the value of that loan? Answer:
Suppose the interest rate is 3.9%. a. Having $350 today is equivalent to having what amount in one year? b. Having $350 in one year is equivalent to having what amount today? c. Which would you prefer, $350 today or $350 in one year? Does your answer depend on when you need the money? Why or why not? a. Having $350 today is equivalent to having what amount in one year? It is equivalent to $. (Round to the nearest cent.)
Optimizing economic agents use the real interest rate when thinking about the economic costs and returns of a loan. Suppose the average rate paid by banks on savings accounts is 0.45% at a time when infialion is around 0 9% For the average saver, the real rate of interest on his or her savings is % (Round your response to two decimal places and use a minus sign if necessay.) Il banks expect that the rate of inflation in the coming year will be 3.9% and they want a real return of 8% on a certain category of loans, then the nominal rate they should charge borrowers on those loans is %. (Round your response to two decimal places) 11 the economy experiences an unexpectedly high rate of inflation, the group that would tend to benefit is O A. creditors (people or institutions that are owed money). O B. deblors (pcople or businesses who owe moncy). OC. both would benefit cgqually O D. neilher bencfits.

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