Homework 1

READ BEFORE YOU START: Solve each of the following question using 3 methods: pricing formulas, a financial calculator, and Excel. When calculating using the pricing formula (e.g. Price of perpetuity P = C/r), please write the original formula and the steps where you plug in the number for each variable, and your final answers. When solving via a financial calculator, please indicate the inputs and output variable (e.g. PMT, N, PV, I/Y, and FV). When solving it using Excel, learn from the Excel functions file and print the results displayed in formula (Before printing, go to Formulas panel, click Show Formulas and then print the page). The results should have at least two columns: question number in column 1 and formula used in column 2 like below:

Question 1

=pmt(5%, 10, -100, 20, 0)

4. A bond with a face value of $1,000 pays a 10% (APR) semiannual coupon and matures in 10 years. Similar bonds trade at a YTM of 8% (APR). What is the price of the bond?