Question

1) What is the price of the following bonds? The bond will expire in 8 years, pay a 6% coupon, pay interest semi-annually, pay $1,000 when it expires, and you need a 5% return.

2) What is the maturity rate of the following bonds? The price of the bond is $985.00, the 14-year period is $1,000, the coupon rate is 4%, half-year payment.

3) You have a $500 investment. You have two options how to invest. Choosing "A" will allow you to invest 8% annually for two years. Choosing "B" will allow you to invest 7% in the first year and then reinvest your earnings for a year. What kind of rate of return do you need to earn in the second year of choosing "B" to expect you to receive the same return as choosing "A"?

4) Calculate the deadline for the following U.S. Treasury bills. Although the bill was originally issued for a period of five years, it currently has a two-year period. Bills pay interest semi-annually for a coupon rate of 3.00%. The market requires a yield of 2.40% of the bill.

5) Your bank plans to provide the customer with a loan of $15,000. The customer will have three instalments. Your bank will charge a 7% annual interest rate on the loan. What is the starting time of this loan?

6) You expect that the actual rate of return in the United States will reach 4% next year and the inflation rate will reach 2%. Based on the Fisher effect, what is the U.S. expected nominal interest rate for a one-year risk-free guarantee?

7) The one-year U.S. treasury bond's nominal interest rate is 3.04%. If the expected inflation rate for the next year is 1.4%, what is the expected actual economic rate of return based on the Fisher effect?

8) The yield curve of the internal I-region shows that the 1-year, 2-year, 1-year, 3-year and 4-year securities are 5%, 6%, 6.5% and 6.75%, respectively. Using PET, calculate: A) Expected annual rate for one year B) Expected two-year rate for one year C) Expected three-year rate for one year D) Two-year expected rate for two years

Answer 1

Please provide rest of the question separately..As per guidelines provided to us we are supposed to solve only 1 question in case there are multiple question.I have done 3.Thanks..:-)
1)	Price of bond =		PV of cashflows discounted @ YTM
	n =	8 x 2 =	16	semi annual periods
	Rate =	5/2 =	2.50%	Per 6 month
	Coupon =	1000 x 6% x 1/2 =	30	Per 6 month
	Semi annual period	Cashflow	PV factor	PV of CF
	1-16	30	13.06	391.6501
	16	1000	0.673625	673.6249
				1065.275
2)	YTM =	Rate at which the PV of cashflows = Price
	Price =	Coupon x PVAF(r,n) + Par x PVIF(r,n)
	985 =	1000 x 4% x 1/2 x PVAf(r,28) + 1000 x PVIF(r,28)
	YTM			Price
	2%			1000
	YTM			985
	2.5%			900.1756
	Using linear Interpolation -
	YTM-2/2.5-2 =		985-1000/900.1756-1000
	YTM-2 =		-15/99.8244
	YTM-2 =		0.075132
	YTM =		2.075132
	Annual Rate =		2.075 x 2
			4.150264
3)	Future value under PlanA = Plan B
	500 x (1.08)^2 =		500 x (1.07) x (1+r)
	1+r =		1.08^2/1.07
	1+r =		1.090093
	r =		0.090093
			9.009346	%