4. When you purchased GE bonds at $980, you expected a return rate 8% APR. After holding the bonds for 2 months, you received a $20 coupon payment. If you want to sell the bonds right after receiving the coupon, at what price can you achieve your target return rate?

5. Bank of America offered you 3% APR interest rate on the CD account. After checking the internet, you noticed that the inflation rate was 2% for the year. What is the real interest rate you got? Suppose you also got a 12% APR return rate from your stock investment of Google, how much is the risk premium on the stock investment?

6. According to the riskiness of mutual fund SCVI, investors require 6% risk premium to compensate for the risk. If SCVI offer 9% return rate, how much is the risk free rate?

Formula

Holding period Return: r= Psell-Pbuy+(dividend or Coupon) / Pbuy

APR = Period Interest Rate * #of periods in a year

Effective Annual Rate = (1+ APR/n) ^2 -1

r=rf+risk premium, where rf is nominal interest rate (aka, risk free rate)

Expectation Theory: (1+r₂)² = (1+r₁)*(1+f) r₁ & r₂: 1-year & 2-year C.D. rates; f: forward rate

Fisher Effect: (1+R) = (1+r)(1+h) R:Nominal, r: Real, h: Inflation

APR = Period Interest Rate * #of periods in a year

Effective Annual Rate = (1+ APR/n) ^2 -1