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Question 1.
A fund of 2,000 is to be accumulated by annual payments of $0 by the end of each
year, followed by annual payments of 100 by the end of each year, plus a smaller final
payment (ie, a drop payment) made | year after the last regular payment . If the
effective rate of interest is 4.5%, find n and the amount of the drop payment. Question 2.
Accompany is considering a project that will require an initial investment of 1000 and
additional investments of 300 and 100 at the end of years one and two, respectively. It
is expected that revenue from this project will be 300 per year for five years, beginning
one year from the initial investment. Assuming an annual effective rate of 15%,
calculate the net present value of this project. Question 3.
Calculate the Macaulay duration for an 9% annual coupon bond with 5 years left to
maturity and a face value of 1000, if the bond's yield to maturity is 10%,
‘What is the Modified duration of the above bond?
If the 5-year yield to maturity were to suddenly increase from 10% to 11%, what
would you expect the bond price to be after the yield increases to 10.30%? [Question 4.
A 10-year bond has face value $1000, but will be redeemed for $1100. It pays
semiannual coupons, and is purchased for $1135 to yield 12%, convertible
semiannually. The first coupon is X, and each subsequent coupon is 5% greater than the
preceding coupon. Find the value of X. Question 5.
A loan of 4000 has an annual effective interest rate of 5%, The loan is repaid by
payments of 250 at the end of each year for ten years along with a final balloon payment
at the end of the eleventh year.
a. Calculate the outstanding loan balance at the beginning of the sixth year.
. Find the final balloon payment
