. Use separate sheets to solve each of the following questions. Show your calculations in excel.

1.You are told that a security pays $55 in one year and $133 in three years. Find the appropriate interest rate on this security to get you a present value of $150? [Hint: Consider using 10 different interest rates in your experiment ranging between 1% and 10%]

2.If a bond pays $1500 in one year and $2500 in two years, its present value is $2800. Find the interest rate which equates the price of the bonds with the discounted future values. [Hint: Consider using 10 different interest rates in your experiment ranging between 20% and 30%].

3. Find the prices of a 10% coupon bond with a face value of $4000 on the following yield to maturities: 0.12, 0.11, 0.10, 0.09, and 0.08, and 4 years to maturity. Calculate the interest rate at each price.

4. Comment/Interpret your results:

a.Write down the formula for calculating present value based on your answers to Q1 and Q2.

b.Based on your answers to Q2 and Q3, what is the observed relationship between the interest rate and the price of the bond?

c. What is the relationship between yield to maturity and interest rate in Q3?

Answer rating: 100% (QA)

To find the appropriate interest rate on a security that results in a present value of 150 you can use the present value formula PV CF 1 rn Where PV i... View the full answer