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Which of the following statements is false? a. If the discount rate (or interest) rate is positive, the future value of an unexpected series of payments will always exceed the present value of the same series. b. To increase present consumption beyond present income normally requires either the payment of interest or else an opportunity

Forward and future prices p.381 10. You observe that the one-year forward price of a share of stock in Kramer, Inc., a New York tour-bus company and purveyor of fine clothing, is $45.00 whereas the spot price of a share is $41.00. If the riskless yield on a one-year zero-coupon government bond is 5% :

P.380 2. Suppose that the treasury yield curve is flat at an interest rate of 7% per year (compounded semi-annually). a. What is the spot price of a 30-year treasury bond with a face value of $1,000 and an 8% coupon rate assuming coupons are paid semi-annually? b. What is the forward price of the

P3-1. You have $1,500 to invest today at 7 percent interest compounded annually. a. How much will you have accumulated in the account at the end of the following number of years? 1. Three years 2. Six years 3. Nine years b. Use your findings in part (a) to calculate the amount of interest earned

P3-5. Robert Blanding’s employer offers its workers a two-month paid sabbatical every seven years. Robert, who just started working for the firm, plans to spend his sabbatical touring Europe at an estimated cost of $25,000. To finance his trip, Robert plans to make six annual deposits of $2,500 each, starting one year from now, into

P3-6. Robert Williams is considering an offer to sell his medical practice, allowing him to retire five years early. He has been offered $500,000 for his practice and can invest this amount in an account earning 10 percent per year, compounded annually. If the practice is expected to generate the following cash flows, should Robert

P3-7. Gina Coulson has just contracted to sell a small parcel of land that she inherited a few years ago. The buyer is willing to pay $24,000 at closing of the transaction or will pay the amounts shown in the following table at the beginning of each of the next five years. Because Gina doesn’t

P3-24. Tara Cutler is newly married and is now preparing a surprise gift of a trip to Europe for her husband on their tenth anniversary. Tara plans to invest $5,000 per year until that anniversary and plans to make her first $5,000 investment on their first anniversary. If she earns an 8 percent rate on

Using futures or options a trader can completely avoid risk. Do you agree?

The yield curve

Monday, 25 August 2014 by

50. The yield curve is a. inverted when short term rates are higher than long term rates b. normal when it slopes upward to the right c. a plot of interest rates versus term, also called the term structure of interest rates d. all of the above 51. The federal government can always avoid default

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