Question
1.To illustrate with the simplest case of annual payments, suppose you borrow $24,000 at 10 percent compound annual interest to be repaid over the next
1.To illustrate with the simplest case of annual payments, suppose you borrow $24,000 at 10 percent compound annual interest to be repaid over the next 6 years. Equal installment payments are required at the end of each year. Please determine the annual payment, and amortization schedule.
2. On Jan 1st, 2000, the real risk-free rate is 2% and is expected to be constant for next 20 years. Inflation is expected to be 7% next year, 5% the following year, and 3% thereafter. The maturity risk premium is estimated to be 0.2*(t -1) % and up to 1%. (t = number of years to maturity). Please estimate the term structure of US treasury. Draw the yield curve on Jan 1st, 2000 and whats the expected yield curve on Corporate bond? (show the trend and position only)
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