1) Explain the basis for the present value formula(Equation 4). tell why each term looks the way it does. if the rate of discount is zero, how does the formula simplify?

Equation 4 is P= F 1 / ( 1+i)1+F2 / ( 1+i)2+...+FN/(1+i)N

2) Would you believe a banker who told you that if you invested $1000 in her bank, you would be a millionaire someday? How can this happen?

3) What does it mean to amortize a loan?

4) Why are securities prices and inverse rates inversely related?

5) SUPPOSE THAT I BUY A 10 year bond today for $1000 and that the interest rate when the bond is issued is 5 percent.The day after i buy the bond, the market rate on 10 year bonds rises to 7 percent. If i keep the bond for the full 10 years until it matures, what is the bond's average annual return?

Answer rating: 100% (QA)

1 The present value formula Equation 4 is based on the concept of discounting future cash flows to their present value Each term in the formula repres... View the full answer