Assignment2,PartB-1

Notes:When reporting interest rates and related values, please use the rounding rulesthat are down below.Interestratesandgrowthratesshouldbereported in percent, although you'll usually calculate them as decimal values.Discount ratios, return ratios and annual return ratios should notbe reported in percent: they can be reported in the same (decimal) form in which they're calculated.

Forhelpwiththeassignment,please seetheReferencenotes(Refnotes.pdf),pp.1-4, and my first set of Topic 2-B lecture notes (Lectures2-B1.pdf).Both items will be available in Canvas.

Question 1, unlike Questions 2 and 3, does not primarily require doing calculations.Instead, you'll be translating my in-words descriptions of credit instruments into symbolicdescriptions,usingthenotationfordescribingcredit instrumentspresented in my lectures and notes.A few calculations may be necessary, but they aren't the main component of the answers required.

ROUNDING RULES

In the case ofinterest rates and related values, round to the third decimal place, which is thenearest tenth of a percent. Examples: round 0.0746139 to 0.075, which is 7.5 percent and should be reported in that way. And round 1.1386529 to 1.139.

Do the same thing for discount ratios, return ratios and annual return ratios, which shouldnotbe reported in percent.

In the case ofa dollar figure greater than $1000, round to thenearest dollar. Example: round $23453.29874 to $23,453.

In the case ofa dollar figure less than $1000, round to thenearest cent. Example: round $97.335914 to $97.34.

If you need to use an answer from one question to help you calculate the answer to another question, feel free to use the rounded version of the first answer.

1. Notation

Translatethefollowingdescriptionsofcreditinstrumentsintothenotation usedin class.

Note:ForthecreditinstrumentsinPartsA-CandF,youdonotneedtoprovide acomplete mathematical description of the payment on the credit instrument in each year.For the credit instruments in Parts D and E, you do need to do so.

1. a. Acredit instrumentwith afive-year termcosts $10,000and returnsa singlepayment of $15,000 at maturity.

1. b. Acreditinstrumentwithatermofthreemonthscosts$99,250.Itreturnsasingle payment of $100,000 at maturity.

1. c. Acreditinstrumentcosts$50,000.Itreturnsapaymentof$35,000after twoyears,a paymentof$40,000after fiveyears,anda(final)paymentof$25,000aftertenyears.

1. d. Aprincipal-and-interestcreditinstrumentwithatermoftwelve yearscosts$9000. It has a face value of $10,000 and a coupon rate of 4 percent.

1. e. Anannuitycosts$750,000.Itreturnsapaymentof$100,000attheendofeachofthe next ten years.

1. f. A credit instrument with a termof nine years costs $250,000.It returns a payment at the end of every third year after it is issued.The first payment is $180,000.Each subsequentpaymentisathirdsmaller(two-thirdsaslarge as)theprecedingpayment.

2. Calculatingreturnrates

Calculatethe discount ratio, returnratio, annual return ratioand annual rateof return (interest rate) for each of the following credit instruments.

Note:As indicated in the introduction, the annual interest rate should be reported in percent, but the other values should not be.Unless otherwise indicated, round thevaluestothreedecimalplaces, if they have that many. Fortheannualinterest rate, that amounts to rounding to the nearest tenth of a percent.

2. a. ThecreditinstrumentfromQuestion1-A.

2. b. Acreditinstrumentthathasafour-yearterm,costs$20,000,andreturnsasingle payment of $25,000 at maturity.

2. c. Acreditinstrumentthathasatwo-yearterm,costs$9000,andreturns asinglepayment of $10,000 at maturity.

2. d. Acreditinstrumentthathasaone-yearterm,costs$950,andreturns asinglepayment of $1000 at maturity.

2. e. ThecreditinstrumentfromQuestion1-B.

2. f. Asingle-paymentcredit instrumentthatcosts$42,000andreturns$50,000after 30 months.

3. Interestratesandgrowth rates

Calculatetheannualgrowthrateofeachofthefollowingitems.Reportthegrowthrates in percent.Unless otherwise indicated, round to the nearest tenth of a percent.

Hint:Ineachcase,calculatethetimeinterval betweenthetwovalues,measured inyears, possibly including fractions of a year.Use it as the "term."

3. a. WorldwideiPhone sales,whichwere39.99million in2010and231.22million in 2015.

3. b. Thepopulation ofIndia, whichwas 376.3million in1950 and1406.6 millionin 2022.

3. c. TheU.S.national(federal government)debt, whichwas $8507billion in2006 and $29,617 billion in 2021.

3. d. TheU.S.Consumer PriceIndex,which was257.0inDecember2019,shortlybeforethe pandemic began, and 296.3 in June 2022.(Hint:How many months are there from December 2019 to June 2022, counting January 2019 as the first month?)

3. e. ThesurfaceareaoftheAralSeainCentral Asia,whichisdryingup.Itwas68,000 square kilometers in 1960 and 14,280 square kilometers in 2010.

3. f. Thepriceofa Turkish lirainU.S. dollars,whichwas$0.118 inAugust2021 and $0.056 in June 2022. (Hint:HowmanymonthsaretherefromAugusttoJune, counting September as the first month?)