Question

1.) A U.S bank pays 2.2% interest on deposits. You deposit $100,000 for 3 months beginning today. What are the proceeds?

2.) A 3 year bond with a face value of 100, pays an annual coupon rate of 10%. If its price is 100, its yield to maturity is:

3.) For an investment of $100 to reach a (future) value of $200 in seven years, it must produce a Compound Annual Growth Rate (implied interest rate) of:

Answer 1

1)

Proceeds in 3 months

=

Present Value x i x n

Where,

=

$       1,00,000

x

2.20%

x

3/12

i

2.20%

=

$                 550

n

3/12

2)

Yield to matuirty is 10%

Working:

When price of Bond is equal to Its Face Value.It's yield to maturity is equal to Its coupon rate.

3)

Annual Growth Rate

10.41%

Working:

A

=

P*(1+i)^n

Where,

200

=

100*(1+i)^7

A

Future Value

200

2

=

(1+i)^7

P

Present value

100

2^(1/7)

=

1+i

i

Growth rate

?

1.10409

=

1+i

n

Life

7

i

=

0.10409

Thus, annual hrowth rate

10.41%