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Exercises Chapter 2

This document discusses interest rates and calculations related to simple loans, fixed payment loans, coupon bonds, and discount bonds. It includes examples of: 1) Calculating interest rates and amounts owed on simple loans over 1-3 years 2) Determining yield to maturity on fixed payment loans over 25 and 20 years 3) Finding bond prices and yields to maturity for coupon and discount bonds maturing over 8-10 years

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21 views1 page

Exercises Chapter 2

This document discusses interest rates and calculations related to simple loans, fixed payment loans, coupon bonds, and discount bonds. It includes examples of: 1) Calculating interest rates and amounts owed on simple loans over 1-3 years 2) Determining yield to maturity on fixed payment loans over 25 and 20 years 3) Finding bond prices and yields to maturity for coupon and discount bonds maturing over 8-10 years

Uploaded by

ntxthuy04
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER 2 – INTEREST RATE

1. Simple loans:
a. If Peter borrows $200 from his sister and next year, she wants $210
back from him, what is the yield to maturity on this loan?
b. You need to have an amount of $1300 in 3 years later, and now you
have $1000 in hand. What is the interest rate of the investment
opportunity you need to find?
c. You are making a loan of $1500 with an interest rate of 12%/year.
After 3 years, how much you have to pay for both principal and interest?

2. Fixed payment loans


a. Suppose the loan is $1000 and the yearly cash flow payment is $85.81
for next 25 years. What is the yield to maturity of this loan?
b. You decide to purchase a new home and need a $100,000 mortgage.
You take out a 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 20 years?

3. Coupon bonds
a. Find the price of a 10% coupon bond with a face value of $1,000, a
12.25% yield to maturity, and 8 years to maturity.
c. Calculating the yield to maturity of a coupon bond, which has par value
of $1000, pays coupon of 10% within 10 years and being sold for
$1200, $1100, $1000, $900, $800 respectively?

3. Discount bonds
a. Let’s consider a discount bond with a face value of $1,000 in one
year’s time. If the current purchase price of this bill is $900, what is the
yield to maturity of this bond?
b. Calculating the price of a 1-year discount bond, which has a par value
of $1000 and yield to maturity of 9%.

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