Assignment:
1. Compute the future value of $100 at an 8 percent interest rate for the following time periods:
(a) 5 years into the future.
(b) 10 years into the future.
2. Compute the future value of $100 at an 5 percent interest rate for the following time periods:
(a) 5 years into the future.
(b) 10 years into the future.
(c) 15 years into the future.
For this question, you MUST submit an Excel worksheet. Use the template provided here and input the parameters in the GREEN shaded cells. Future values (FV) are calculated for you automatically once you enter the specified numbers above.
(a) is already completed as an example for you to follow.
3. Compute the present value of a $100 investment at a 4 percent interest for the following time periods:
(a) 5 years from now.
(b) 10 years from now.
For this question, you MUST submit an Excel worksheet. Use the template provided here and input the parameters in the GREEN shaded cells. Present values (PV) are calculated for you automatically once you enter the specified numbers above.
(a) is already completed as an example for you to follow.
4. Assuming that the current interest rate is 3 percent, compute the following:
The present value of a five-year, 5 percent coupon bond with a face value of $1,000 (the present value is the current price of the bond).
5. (a) Assuming that the current interest rate is 4 percent, compute the following:
The present value of a five-year, 5 percent coupon bond with a face value of $1,000 (the present value is the current price of the bond).
(b) Assuming that the current interest rate is 2 percent, compute the following:
The present value of a five-year, 5 percent coupon bond with a face value of $1,000 (the present value is the current price of the bond).
For this question, you MUST submit an Excel worksheet. Use the template provided here and input the parameters in the GREEN shaded cells. Present values (PV) are calculated for you automatically once you enter the specified numbers above.
(a) is already completed as an example for you to follow.
6. A financial institution offers you a one-year certificate of deposit with an interest rate of 5 percent. You expect the inflation rate to be 3 percent. What is the real return on your deposit?
7. If the current interest rate increases, what would you expect to happen to bond prices? Explain.
8. Consider two scenarios.
In the first, the nominal interest rate is 6 percent and the expected rate of inflation is 4 percent.
In the second, the nominal interest rate is 5 percent and the expected rate of inflation is 2 percent.
In which situation would you rather be a lender? In which would you rather be a borrower?