You are interested in valuing that describes the evolution of the one-year interest rate in different interest rate states is presented in the following table. Year O 3.5% 1 Year Year 1 5.429% (h) 3.5% 4.445% (1) Year 2 7.095% (hh) 5.735% (hl) 4.696% (11) Year 3 9.199% (hhh) 7.531% (hhl) 6.166% (hll) The annual spot rates for different maturities are presented in the following table. 5.048% (III) 2 Years 3 Years 4 Years 4.2147% 4.7345% 5.2707% Assume that the par value is $100 and all bonds pay coupon annually. The risk-neutral probability is 50% on each leg.

You are interested in valuing that describes the evolution of the one-year interest rate in different interest rate states is presented in the following table. Year O 3.5% 1 Year Year 1 5.429% (h) 3.5% 4.445% (1) Year 2 7.095% (hh) 5.735% (hl) 4.696% (11) Year 3 9.199% (hhh) 7.531% (hhl) 6.166% (hll) The annual spot rates for different maturities are presented in the following table. 5.048% (III) 2 Years 3 Years 4 Years 4.2147% 4.7345% 5.2707% Assume that the par value is $100 and all bonds pay coupon annually. The risk-neutral probability is 50% on each leg.

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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Solve for the unknown interest rate in each of the following (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.):
Which of the following 4 loans has the lowest interest rate risk to the lenders? Loan 1 Loan 2 Loan 3 Loan 4 Initial Interest rate 5.00% 3.75% 4.50% 4.00% Loan Maturity (in 30 30 30 30 years) Margin above the n/a 3% 3% 3% index every Adjustment interval n/a every year every year year 1% per 3% per Interest rate cap n/a None year year Loan 1 Loan 2 Loan 3 Loan 4 O Cannot determine
Complete the following using present value. (Use the Table provided.) (Do not round intermediate calculations. Round the "Rate used" to the nearest tenth percent. Round the "PV factor" to 4 decimal places and final answer to the nearest cent.) Amount desired at end of period 6,600 Length of time 10 years Rate 2% Compounded semiannually On PV Table 12.3 Period used 120 Rate used 0.2 % PV factor used 0.2400 $ PV of amount desired at end of period 1,584.08
Fill in the blanks in the last 3 columns below with the required data based on the given about compounding interest. Compound Interest formula: S= P(1+ * (1+ 0" Time Annual in Compounding Term Rate Future Periodic rate (i) Present Value (P) Period (n) Amount (S) Years (m) (R) (t) AED AED 9,274.49 9% monthly Round to 2 d.p. AED quarterly AED 1,114.46 10% Round to 2 d.p.
Find the future value. (Use the Table 12.1.) (Do not round intermediate calculations. Round the "FV factor" to 4 decimal places and final answer to the nearest cent.) $ Present value 11,129.37 Length of time 5 years Rate 12% Compounded Quarterly On FV Table 12.1 Period used 20 Rate used 3% FV factor used Future value
13 When interest is calculated for periods shorter than a year, the formula to calculate interest is: Multiple Choice I = P × R × T, where I = interest calculated, P = principal, R = annual interest rate, and T = number of months. I = P × R × T, where I = interest calculated, P = principal, R = annual interest rate, and T = (number of months ÷ 12). I = P × R × T, where I = interest calculated, P = principal, R = monthly interest rate, and T = (number of months ÷ 12). I = (MV − P)/T, where I = interest calculated, MV = maturity value, P = principal and T = number of months.
Assume an effective compound interest rate i= 3% per annum. Compute the following equivalent rates. In each case, enter your answer as a percentage. a) The nominal interest rate payable semi-annually Number % Enter an answer correct to 4 decimal places. b) The effective interest rate payable quarterly Number Enter an answer correct to 2 decimal places. c) The effective rate of discount per annum Number Enter an answer correct to 2 decimal places. d) The nominal rate of discount payable monthly Number % Enter an answer correct to 4 decimal places.
Use the continuous compound interest formula to find the indicated value. A= $16,687; P=$10,400; t= 60 months; r= ?
Question 3 (at home, to practice) The following banks all offer 20-year Certificates of Deposits* (CDs), but at the following, different, conditions: Bank A: Bank B: Bank C: Bank D: Bank E: 10 percent per year compounded annually 9.8 percent per year compounded semiannually 9.6 percent per year compounded quarterly 9.5 percent per year compounded monthly 9.4 percent per year compounded daily Francesca has inherited £150,000. She decides to invest the money in the 20-year Certificate of Deposit offered by Bank E. If, instead, Francesca had invested her money in the bank with the CD offering the best rate, how much more money would she have had after 20 years? First write down the formulae you need to use to do the calculations. Then, solve numerically using a calculator or Excel.
What is the period in years?
CD interest rates vary. In 1981, the average rate was 16.7%. In 2000, it was 8.1% and in 2009, it was 2%. Find the interest earned by a $1000 two-year cd with interest compounded quarterly in: A. 1981 B. 2000 C. 2009
Complete the table, applying the concepts of Simple Interest. Show your complete solution. Principal (P) Interest Rate (r) Time (t) Maturity Value (A) (1) 3.2% 6 months P 37 000 P 140 000 (2) 18 months P 157 700 P 75 800 8 2 % (3) P 88 600 P 340 200 7.3% 10 years (4) P1 400 500 4.4% 12 years (5)

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