1.

a. How much is $100,000 to be paid December 4 worth on Sept 4 at a 2% discount rate?

2. What if the day-count convention were act/365?
3. What is the equivalent act/365 rate?

2. Assume annual compounding.

1. An asset pays 200 in 1 year. The rate of discount is 4%. What is its price? What happens to its price if the rate of discount jumps to 5%? What is the percentage price decline?
2. An asset pays 200 in 2 years. The rate of discount is 4%. What is its price? What happens to its price if the discount rate jumps to 5%? What is the percentage price decline?
3. An asset pays 100 in 1 year and 100 in 2 years. The rate of discount for each cash flow is 4%. What is the assets price? What happens to its price if the discount rate jumps to 5%? What is the percentage price decline?
4. An asset pays 20 in 1 year and 200 in 2 years. The rate of discount for each cash flow is 4%. What is the assets price? What happens to its price if the discount rate jumps to 5%? What is the percentage price decline?
5. What does this suggest to you about percentage price sensitivity when there are multiple cash flows?