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    Chapter 2 - Exercises

    Uploaded by

    Jin Jin
    lzme

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Chapter 2 - Exercises

    Uploaded by

    Jin Jin
    3 views1 page
    lzme

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    © © All Rights Reserved

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    PDF, TXT or read online from Scribd

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    lzme

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    3 views1 page

    Chapter 2 - Exercises

    Uploaded by

    Jin Jin
    lzme

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 1

    CHAPTER 2 – INTEREST RATES

    1. a) Calculate the present value of $5.000 simple loan with an interest rate of 6 percent, 5-year term.
    b) If the amount payable in two years is $2.420 for a simple loan of $2.000, what is the loan’s yield to maturity?
    c) For a 3-year simple loan of $10.000 principal at 10% percent, what is the amount to be repaid?
    2. Calculate the yield to maturity on a 20-year 10% coupon bond with $1.000 face value that sells for $2.000.
    3. Consider a bond with a 7% annual coupon and a face value of $1.000. Complete the following table.
    Years to maturity Yield to maturity Current Price
    3 7%
    3 5%
    3 9%
    6 7%
    9 7%

    4. a) Calculate the present value of a $1.000 zero-coupon bond with six years to maturity if the yield to maturity
    is 6%.
    b) If you take out a 100.000$ loan from the bank that has an interest rate of 7%. What is the yearly payment to
    the bank to pay off the loan in 10 years?
    5. a) If mortgage rates rise from 5% to 10%, but the expected rate of increase in housing prices rises from 2% to
    4%, are people more or less likely to buy houses using a mortgage?
    6. a) Predict what would happen to interest rates on a corporation’s bonds if the CEO announced that
    corporation’s revenue might decline and would lead to a sharp fall in profit.
    b) Predict what would happen to the risk premiums on corporate bonds if brokerage fees were lowered in the
    corporate bond market.
    c) If the income tax exemption on municipal bonds were abolished, what would happen to the interest rates on
    these bonds?
    The market expectation for one-year T-bill rates for the following four years, as follows:
    Year 1-year rate
    1 5%
    2 4,5%
    3 4%
    4 3,5%
    (1p) a) Assuming that the expectations theory is the correct theory of the term structure, calculate the interest rates
    in the term structure for maturities of one to four years, and plot the resulting yield curves
    (1p) b) If the term premiums for two to four-year bonds are 0,5%, 1,0% và 1,5%, predict how the yield curve will
    change?

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