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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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
Transcribed Image Text:Your liabilities consist of a payment of $5 million coming due in two years and a
payment of $4 million coming due in three years. The market interest rate is 2%.
What are the duration and convexity of your liabilities?
O 2.71 and 7.64
O 2.80 and 9.17
O 2.21 and 5.39
O 2.44 and 6.20
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- 2. Find the present value of $500 due in the future under each of these conditions: a. 12% nominal rate, semiannual compounding, discounted back 5 years b. 12% nominal rate, quarterly compounding, discounted back 5 years c. 12% nominal rate, monthly compounding, discounted back 1 year Hint: identify the interest rate per period and the total number of periods in each scenario first. Oarrow_forwardSuppose the term structure of interest rates is shown below: Term Rate (EAR%) 1 year 5.00% 2 years 3 years 5 years 10 years 20 years 4.50% 4.30% 4.30% 4.25% 4.15% The present value of receiving $1000 per year with certainty at the end of the next three years is closest to:arrow_forwardCurrent interest rates are i$ = 4%;i€ = 6%. Expected interest rates next year are: i$ = 7%;i € = 3%. The expected spot rate in two years is S2($/€) = 1. Use the asset market approach to compute the current spot rate S0($/€). Please type in the number without the currency signs. For example, if your answer is $1.25/€, then type in 1.25 as your final answer. Please keep at least three decimal places (up to 5 decimal places)arrow_forward
- Interest rate is 2%. When I make a deposit of 10,000 yen with the maturity of 3 years, I plan to receive an interest every year. In this case, I can receive 200 yen as an interest after 1 year, and 200 yen as an interest after 2 years. At the end of the 3r year, I can receive 10,200 yen including principal and interest. In other situation, if I make a deposit of 10,000 yen with the maturity of 3 years, I can receive 250 yen after 1 year, and 250 yen after 2 years. At the end of the 3rd year, I can receive 10,250 yen. How much is the interest rate of this opportunity? Write an answer like the example. <Example> 2.1 (%) DO NOT put % in your answerarrow_forward(Ch 11 #9) There is a loan obligation to pay $1000 one year from today and another $1000 two years from today. Assuming the annual effective rate of interest is 10%, find the following: a) Macaulay duration of the loan. b) Modified duration of the loan. c) Convexity of the loan.arrow_forwardFor each of the following cases, indicate (a) what interest rate columns and (b) what number of periods you would refer to in looking up the future value factor. (1) In Table 1 (future value of 1): Number of Annual Rate Years Invested Compounded Case A 5% 5 Annually Case B 8% 6 Semiannually Case A Case B . (a) % % (2) In Table 2 (future value of an annuity of 1): Annual Rate Number of Years Invested Compounded Case A 6% 9 Annually Case B 8% 5 Semiannually Case A Case B (b) periods periods (a) (b) % periods % periodsarrow_forward
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