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Question 1 Use the following equation to find the future value of a $ 3 0 , 0 0 0 investment into a 2 0
Question
Use the following equation to find the future value of a $ investment into a year treasury at 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
rate of interest
compounding period
Question
Lets assume the rate of inflation is represented by the target average of roughly Using the same inputs, what is the real return of our year treasury? Show all your work.
Question
We now want to pursue a more short term investment with more liquidity. Currently, the yield on year US treasuries is Our year treasury will yield a coupon payment every months. Given the expanded version of our FV equation, what is the future value of this investment if all coupon payments were reinvested into principal until maturity? Note: we are only finding nominal returns here.
Where:
FV Future Value
Present Value
rate of interest
compounding period
compounding frequency
Question
We would now like to know the present value of our year treasury from question one. Use your result from question for this time we'll assume a typical compounding period for bonds of every months remember we are discounting Use the present value form of our equation presented below:
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