3. a. Suppose that I receive a payment of $100,000 in three years. If interest rates...

 

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3. a. Suppose that I receive a payment of $100,000 in three years. If interest rates are 5%, then what is the present value today of the future payment? b. A simple discount bond pays $20,000 in one year. Find the yield to maturity when the price of the bond is i. $19,000 ii. $19,900 iii. $20,000 What happens to the yield to maturity as the price of the bond increases? c. How much would investors be willing to pay for a perpetuity that that pays $15,000 per year if interest rates are 2%? 4. a. Assuming that each class day is one year, what were the yields to maturity for Series A and Series B bonds? b. What happened to the demand for bonds between Series A and B? According to the theory of asset demand, why? c. Look at the demand schedule for Series B bonds. If 150 bonds were sold instead in the Series B bond market, what would be the equilibrium (or market- clearing) price? 3. a. Suppose that I receive a payment of $100,000 in three years. If interest rates are 5%, then what is the present value today of the future payment? b. A simple discount bond pays $20,000 in one year. Find the yield to maturity when the price of the bond is i. $19,000 ii. $19,900 iii. $20,000 What happens to the yield to maturity as the price of the bond increases? c. How much would investors be willing to pay for a perpetuity that that pays $15,000 per year if interest rates are 2%? 4. a. Assuming that each class day is one year, what were the yields to maturity for Series A and Series B bonds? b. What happened to the demand for bonds between Series A and B? According to the theory of asset demand, why? c. Look at the demand schedule for Series B bonds. If 150 bonds were sold instead in the Series B bond market, what would be the equilibrium (or market- clearing) price?

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3 a To calculate the present value of a future payment we can use the formula for present value Pres... View the full answer