FIN 300 Chapter 3: chapter 3
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Which investment returns a greater future value at time 10; A or B
INVESTMENT A
time | return | investment |
0 | $1,000.00 | |
1 | 3% | |
2 | 3% | |
3 | 3% | |
4 | 3% | |
5 | 3% | |
6 | 3% | |
7 | 3% | |
8 | 3% | |
9 | 3% | |
10 | 3% |
INVESTMENT B
time | return | investment |
0 | $1,000.00 | |
1 | -1% | |
2 | -1% | |
3 | 2% | |
4 | 3% | |
5 | 2% | |
6 | -3% | |
7 | 7% | |
8 | 6% | |
9 | 6% | |
10 | 4% |
You plan to buy a car 3 years from now and plan to take out a 3-year car loan. Given the following yield curve and assume that the spot rates are continuous compounded, what will be the interest rate for your car loan?
Yrs to Maturity | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
% yield | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
2. Given the following treasury bonds, calculate the 18-month zero rate. Assume face value of each bond is 100 and coupons are paid semi-annually.
Bond | Yrs to Maturity | Annual coupon rate% | Bond price |
A | 0.5 | 0 | 98 |
B | 1 | 8 | 98 |
C | 1.5 | 9 | 104 |