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Question 1 Use the following equation to find the future value of a $30,000 investment into a 20 year treasury at 2.64%? Assume this
Question 1 Use the following equation to find the future value of a $30,000 investment into a 20 year treasury at 2.64%? Assume this investment only compounds at a rate of once per year. Also assume we are given the nominal rate of interest. Where: FV = Future Value PV = Present Value r = rate of interest n = compounding period FV = PV(1+r)" Question 2 Lets assume the rate of inflation is represented by the target average of roughly 2.5%. Using the same inputs, what is the real return of our 20 year treasury? Show all your work. Question 3 We now want to pursue a more short term investment with more liquidity. Currently, the yield on 2-year US treasuries is 2.51%. Our 2-year treasury will yield a coupon payment every 6-months. Given the expanded version of our FV equation, what is the future value of this investment if all coupon payments were re-invested into principal until maturity? Note: we are only finding nominal returns here. FV = PV(1+++) (n)(t) Where: FV = Future Value PV = Present Value r = rate of interest n = compounding period t = compounding frequency Question 4 We would now like to know the present value of our 10-year treasury from question one. Use your result from question 1 for FV, this time we'll assume a typical compounding period for bonds of every 6 months (remember we are discounting). Use the present value form of our equation presented below: PV = FV (1+)000
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