2. Given the following discount prices Discount prices d .90 d2 .80 d3 .70 d .60...

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2. Given the following discount prices Discount prices d₁ .90 d2 .80 d3 .70 d .60 a. Calculate the annually compounded spot rates for year 1, 2, 3, and 4. b. What is the semi-annually compounded yield to maturity of the 2-year bond? 3. Suppose you commit to buy a 4-year treasury bond at a discount price of $0.96 two years from now. What is the 4-year forward rate two-years from now? 4. Today you buy Microsoft at $215.37. You intend to hold this stock for four years. In order for you to earn average 7% per year over the next four years (and receive no dividends) what price must you sell it for at the end of four years? 5. You buy Microsoft at 215.37. Four years later you sell it for $265. What rate of return have you earned per year over your holding period? 2. Given the following discount prices Discount prices d₁ .90 d2 .80 d3 .70 d .60 a. Calculate the annually compounded spot rates for year 1, 2, 3, and 4. b. What is the semi-annually compounded yield to maturity of the 2-year bond? 3. Suppose you commit to buy a 4-year treasury bond at a discount price of $0.96 two years from now. What is the 4-year forward rate two-years from now? 4. Today you buy Microsoft at $215.37. You intend to hold this stock for four years. In order for you to earn average 7% per year over the next four years (and receive no dividends) what price must you sell it for at the end of four years? 5. You buy Microsoft at 215.37. Four years later you sell it for $265. What rate of return have you earned per year over your holding period?

Answer rating: 100% (QA)

a To calculate the annually compounded spot rates we can use the formula Spot Rate 1 Discount Price 1 Given the discount prices d 090 d 080 d 070 d 06... View the full answer