Question 1: (15 points)

The President of the Poseidon Bank is offering you the financial analyst position because she

admires your knowledge and your character. Prove to her that you know how to fix an

amortization schedule given that the loan amount is L= $90,000 dollars, the interest rate is

6% and the time-period is six years.

a. Show all your calculations analytically.

b. Is this loan an Annuity? What kind of an Annuity?

Question 2: (20 points)

a. Consider a ten-year bond issue by Financial Institution OMEGA of Oakland California. The Face value of the bond is $1,000 dollars, the coupon rate of the bond is 12% and the ongoing market interest rate is 12%. Calculate the value of the bond, USING THE TIMELINE APPROACH, the Current Yield, the Yield to Maturity and the Capital Gains Yield respectively.

b. Economic conditions change in the country and the ongoing rate of interest increases to 14%. Calculate the value of the bond, USING THE TIMELINE APPROACH the Current Yield, the Yield to Maturity and the Capital Gains Yield respectively.

c. A new President is elected, and the discount rate drops to 8%. Calculate the new value of the bond, USING THE TIMELINE APPROACH, the Current Yield, the Yield to Maturity and the Capital Gains Yield respectively.

d. Carefully draw the Bond Path over the ten-year period and properly explain your answers.

Question 3: (15 points)

Consider a Cash Flow Stream of equal amounts of 1500dollars for six years and a discount rate of 6%.

a. Calculate the PVOA, PVAD and the FVOA,FVAD, by using the Annuity Formulae that youhave learned in your class.

b. Show that PVAD>PVOA and carefully explain your answer.

c. Show that FVAD>FVOA and carefully explain your answer.

d. Diagrammatically show the difference between an Annuity Due and an Ordinary Annuity.