EC 303 - The Real Meaning of Interest Rates Homework

EC 303 - JSU - The Real Meaning of Interest Rates Homework

$125

FV= 150; I/Y= 20; N=1; CMPT PV

less

How much is $150 to be received in exactly one year worth to you today if the interest rate is 20​%?

The same $150 would be worth ______ if the interest rates rose to 25%.

decreases, since this represents an increase in the price of the bond and a decrease in potential capital losses.

Is it better for bondholders when the yield to maturity increases or​ decreases?

Bondholders are better off when the yield to​ maturity:

A: decreases, since this represents an increase in the coupon payment and an increase in potential capital gains.

B; increases, since this represents a decrease in the price of the bond and an increase in potential capital gains.

C: ​increases, since this represents a decrease in the bond maturity and a decrease in potential capital losses.

D: decreases, since this represents an increase in the price of the bond and a decrease in potential capital losses.

$3035.50

PV= CF / (1+r)^n so 1125/(1+0.10)^1 + 1220/(1+0.10)²+ 1337/(1+0.10)³

If the interest rate is 10% what is the present value of a security that pays you $1125 next​ year, $1220 the year​ after, and $1337 the year after​ that?

$9,259,790

A lottery claims its grand prize is $10 million, payable over 5 years at $2,000,000 per year. If the first payment is made​ immediately, what is the grand prize really​ worth? Use an interest rate of 4%?

8%

Consider a coupon bond that has a par value of $900 and a coupon rate of 6%. The bond is currently selling for $867.90 and has 2 years to maturity. What is the bonds Yield To Maturity (YTM)?

The rate of capital gain

Suppose today you buy a coupon bond that you plan to sell one year later. Which part of the rate of return formula incorporates future changes into the​ bond's price?

_______________ is the part of the rate of return formula that incorporates future changes in the price of the bond.

A bond has a face value of $800 and a 10% coupon rate. It’s current price is $740 and it is expected to increase to $780 next year. The current yield is ______%.

Real interest Rate: -2%

Value of nominal interest rate: 9%

Given the nominal interest rate of 15% and the expected inflation of 17%, then the value of the real interest rate is _______?

With the real interest rate equal to 5% and the expected inflation equal to 4%, then the value of the nominal interest rate is _____?

higher; lower

A lender prefers a ______ real interest rate while a borrower prefers a _____ real interest rate.

How much is $150 to be received in exactly one year worth to you today if the interest rate is 10%?

coupon bond

Which of the following instruments pays the holder of the instrument a fixed interest payment every year until​ maturity, and then at maturity pays the holder the face value​ (principle) of the​ instrument?

A: fixed-payment loan

B: coupon bond

C: simple loan

D: discount bond