1. You borrowed $1000 on January 1 and must repay
a total amount of $1060 exactly a year later.
a. What is the interest paid?
b. What is the interest rate?
2. Consider a perpetuity that has a coupon of $100 per year.
a. What is the price of the perpetuity if the yield to maturity is 5%?
b. If the yield to maturity doubles, what will happen to the price?
3. Suppose that the interest rate is 5%. Which of the following statements are true and which are false?
a. $57 today is equivalent to $61 one year from now.
b. $5000 today is equivalent to $5250 one year from now.
c. $37.80 one year from now is equivalent to $36today.