Q3 (10%) (Based on Mishkin, Ch 4, Q1) 3. Is a dollar TOMORROW worth more to you today when the interest rate is 5% or when it is 10%? Why? Hint: Compute the present value b Is a dollar TODAY worth more to you tomorrow when the interest rate is 5% or when it is 10%? Why? Hint: Compute the future value Q4 (15%) (Based on Mishkin, Ch 4, Q3) Suppose the yield to maturity on a normal $1,000 xedpayment loan with $126 yearly payments for 25 years is equal to 12%. a Write down an expression of the cash ows of the loan that relates the principal, the xed payments and the interest rate. (5%) b Suppose you take a $2000 loan that makes you pay $252 per year for 25 years. However, payments are scheduled to start in two years (you get the loan today, and then start paying by the end of year 2 and completely amortize the loan by the end of year 27). Write down an expression relating the principal, the xed payments and the yield to maturity of this loan. (5%) c Show that the yield to maturity of the loan in part b) is less than the yield to maturity in a). Hint: You should compare the expressions in a) and, b) (10%)