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In the following, different parts of the question are independent and not related to each other. (a) Suppose that the effective 3-month risk-free interest rate is 3%. Consider a risk-free security that pays $40 in year 1, $50 in year 3, and $60 in year 4. Note that there is no risk associated with the cash flows. Find the fair value today of the security. (b) Consider an effective 8-month interest rate of 8.3%. Find the effective 2-month interest rate. If you invest $2 million 2 year and 2 months, how much fund will you end up with in 2 years and 2 months? Suppose that the effective semi-annual borrowing rate is 4.5% and investment rate is 5.5%. Can you make a risk-free money in this case? Your answer should be "yes" or "no". No explanation is required. (d) Suppose that you invested $10,000 at the continuously compounded rate of 3.5%. You also invested $20,000 at a continuously compounded rate of 1.5%. In how many years, will both your investment will be the same. Round your answer to two decimal places. In the following, different parts of the question are independent and not related to each other. (a) Suppose that the effective 3-month risk-free interest rate is 3%. Consider a risk-free security that pays $40 in year 1, $50 in year 3, and $60 in year 4. Note that there is no risk associated with the cash flows. Find the fair value today of the security. (b) Consider an effective 8-month interest rate of 8.3%. Find the effective 2-month interest rate. If you invest $2 million 2 year and 2 months, how much fund will you end up with in 2 years and 2 months? Suppose that the effective semi-annual borrowing rate is 4.5% and investment rate is 5.5%. Can you make a risk-free money in this case? Your answer should be "yes" or "no". No explanation is required. (d) Suppose that you invested $10,000 at the continuously compounded rate of 3.5%. You also invested $20,000 at a continuously compounded rate of 1.5%. In how many years, will both your investment will be the same. Round your answer to two decimal places.
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a40103 501033 601034 14621 b The effective 2month interest rate w... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
Posted Date:
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