Don't use Ai.Answer in step by step with explanation. To help pay for university, you have just taken out a $1000 government loan that makes you pay $158 per year for 20 years. However, you don't have to start making these payments until yougraduate from university two years from now. Why is the yield to maturity necessarily less than 15%? (This is the yield to maturity on a normal $1000 fixed-payment loan on which you pay $158 peryear for 20 years.)If your loan ($158 per year for 20 years starting two years from now) had the same yield to maturity as a normal fixed-payment loan with payments of $158 per year for 20 years, then the presentvalue of each $158 payment on your loan would bethe present value of each corresponding $158 payment on the normal fixed-payment loan, and therefore today's value of your loantoday's value of the normal fixed-payment loan. For today's value of your loan to be the same as today's value of the normal fixed-payment loan, the present values of yourthe present values of your payments.would beyearly payments mustFor that to happen, the yield to maturity on your loan mustsince yield to maturity is

Explanation; The yield to maturity (YTM) on your loan must be less than 15% because your payments…

Answered: To help pay for university, you have…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Similar questions

Please answer everything in the photos including the graph.
What is the yield to maturity on a simple loan of $35,000 that requires a repayment of $40,000 in 3 years?
A discount interest loan is a loan arrangement where the interest and any other related charges are calculated at the time the loan is closed. Suppose a one-year loan is stated as $10,000 and the interest rate is 14%. Then, the borrower pays $1,400 interest up front, thereby receiving net funds of $8,600 and repaying $10,000 in a year. What is the effective interest rate on this one-year loan?
Suppose a 10-year, $1,000 bond with a(n) 11% coupon rate and semiannual coupons is trading for a price of $970.75. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to 9% APR, what will the bond's price be?
You borrowed $10,000 from a local bank, with the agreement that you will pay back the loan according to a graduated payment plan. If your first payment is set at $1,500, what would the remaining payment look like at a borrowing rate of 7% over five years? (the value of G approximately is...) $10,000 0 $1.500 20 30 4G
Assume you purchase (at par) one 11-year bond with a 6.95 percent coupon and a $1,000 face value. Suppose you are only able to reinvest the coupons at a rate of 4.95 percent. If you sell the bond after 6 years when the yield to maturity is 7.95 percent, what is your Face Value?
A $1000-face-value bond has a 10% coupon rate. It has two years to maturity. If the price of the bond is $960 what is the yield to maturity? What would be the yield if the price were $1044.89 instead?
You were entitled to receive $5,000 at the end of six months for the rest of your life. If the interest rate is 10% compounded monthly, what is the present value of perpetuity?
How much should you invest each month in order to have $700,000 if your rate of return is 3.6% compounded monthly and you want to achieve your goal in 40 years?How much interest will you earn?How much should you invest each month in order to have $700,000 if you want to achieve your goal in 20 years?If you deposit the amount you need to achieve your goal in 20 years, how much will your savings be worth after 10 years?
Problem 3 An investor bought a discount bond with face value of $1,000 at the price of $870. The bond matures in three years. What is the rate of return? Problem 6 You lend $1,000 today. The borrower promises to return $1,500 in 8 years from now. What is the yield to maturity of this loan?
Suppose a 3 year bond with a 6% coupon rate that was purchased for $760 and had a promised yield of 8%. Suppose that interest rates increased and the price of the bond declined. Displeased, you sold the bond for 798.8 after having owned it for 1 year. What should be the realized yield ?
A five-year bond with a yield of 11% (continuously compounded) pays an 8% coupon at the end of each year. a) What is the bond’s price? b) What is the bond’s duration? c) Use the duration to calculate the effect on the bond’s price of a 0.2% decrease in its yield. d) Recalculate the bond’s price on the basis of a 10.8% per annum yield and verify that the result is in agreement with your answer to (c).

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