(6) Suppose there are only two investment alternatives: a bank deposit that pays 8% per year,...
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(6) Suppose there are only two investment alternatives: a bank deposit that pays 8% per year, and a 3-yr bad face value of $1,000 and 5% annual coupon rate. Assume bank deposit and the coupon hond a perfect was fed the calculation, please make sure to show all formulas and round the values to 2 decimal places) a) Calculate P₁- the market price of the bond at the beginning of year 1. b) Calculate P₂ - the market price of the bond at the beginning of year 2. c) What is the ex-ante (expected) annual rate of return for year 17 What is the ex-te alte of you Assume now that at the beginning of year 2, the deposit interest rate unexpectedly rises to 20% d) Calculate P2*- the new bond price for year 2. e) Calculate RET, - the ex-post (realized) rate of return on the bond in year 1. f) Calculate RET:- the ex-post rate of return on the bond in year 2 23 Share Screens (6) Suppose there are only two investment alternatives: a bank deposit that pays 8% per year, and a 3-yr bad face value of $1,000 and 5% annual coupon rate. Assume bank deposit and the coupon hond a perfect was fed the calculation, please make sure to show all formulas and round the values to 2 decimal places) a) Calculate P₁- the market price of the bond at the beginning of year 1. b) Calculate P₂ - the market price of the bond at the beginning of year 2. c) What is the ex-ante (expected) annual rate of return for year 17 What is the ex-te alte of you Assume now that at the beginning of year 2, the deposit interest rate unexpectedly rises to 20% d) Calculate P2*- the new bond price for year 2. e) Calculate RET, - the ex-post (realized) rate of return on the bond in year 1. f) Calculate RET:- the ex-post rate of return on the bond in year 2 23 Share Screens
Expert Answer:
Answer rating: 100% (QA)
a P F1rn P 1000 1082 P 100011664 P 85833 b P2 F1rn P2 1000 1052 P2 100011025 P2 90... View the full answer
Related Book For
Microeconomics
ISBN: 978-0321866349
14th canadian Edition
Authors: Christopher T.S. Ragan, Richard G Lipsey
Posted Date:
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