Question
1.) If the rate of inflation is 5.2%, what nominal interest rate is necessary for you to earn a 3.9% real interest rate on your
1.) If the rate of inflation is 5.2%, what nominal interest rate is necessary for you to earn a 3.9% real interest rate on your investment? (Note: Be careful not to round any intermediate steps less than six decimal places.) The nominal interest rate is _____%
2.) You are thinking about investing $5,000 in your friend's landscaping business. Even though you know the investment is risky and you can't be sure, you expect your investment to be worth $5,750 next year. You notice that the rate for one-year Treasury bills is 1%. However, you feel that other investments of equal risk to your friend's landscape business offer an expected return of 10% for the year. What should you do?
The present value of the return is
____$
3.) Consider a 10-year bond with a face value of $1,000 that has a coupon rate of 5.5%, with semiannual payments.
a. What is the coupon payment for this bond?
b. Draw the cash flows for the bond on a timeline.
4.) The current zero-coupon yield curve for risk-free bonds is as follows:
Maturity (years) | 1 | 2 | 3 | 4 | 5 |
YTM | 5.00% | 5.50% | 5.75% | 5.95% | 6.05% |
What is the price per $100 face value of a two-year, zero-coupon, risk-free bond? The price per $100 face value of the two-year, zero-coupon, risk-free bond is
$______
5.) The current zero-coupon yield curve for risk-free bonds is as follows:
Maturity (years) | 1 | 2 | 3 | 4 | 5 |
YTM | 5.00% | 5.50% | 5.75% | 5.95% | 6.05% |
What is the price per $100 face value of a four-year, zero-coupon, risk-free bond?
The price per $100 face value of the four-year, zero-coupon, risk-free bond is
$_____
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