Question 1:
A. The cost of an automobile is $10,000. If the interest rate is 5%, how much would you have to set aside now to provide this sum in five years?
B. You have to pay $12,000 a year in school fees at the end of each of the next six years. If the interest rate is 8%, how much do you set aside today to cover these bills?
C. You have invested $60,476 at 8%. After paying the above school fees, how much would you remain at the end of six years?
Question 2:
"What is the PV of $100 received in:
A. Year 10 (at a discount rate of 1%)
B. Year 10 (at a discount rate of 13%)
C. Year 15 (at a discount rate of 25%)
D. Each of years 1 through 3 (at a discount rate of 12%)?"
Question 3:
In February 2009 Treasury 6s of 2026 offered a semiannually compounded yield of 3.5965%. Recognizing that coupons are paid semiannually, calculate the bond's price.
Here are the prices of three bonds with 10-year maturities:
| Bond Coupon (%) |
Price (%) |
| 2 |
81.62 |
| 4 |
98.39 |
| 8 |
133.42 |
"If coupons are paid annually, which bond offered the highest yield to maturity?
Which had the lowest?
Which bonds had the longest and shortest durations? "