The Present Value

Homework: M2: Chapter 5 Homework Save Score: 0 of 1 pt 14 of 18 (4 complete) HW Score: 5.56%, 1 of 18 pts P5-29 (similar to) Question Help Suppose the term structure of risk-free interest rates is as shown below: Term 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr Rate (EAR %) 2.06 2.47 2.68 3.34 3.81 4.12 4.91 a. Calculate the present value of an investment that pays $1,000 in two years and $4,000 in five years for certain. b. Calculate the present value of receiving $600 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year 4 would be the average rate in year 3 and year 5.) c. Calculate the present value of receiving $1,800 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.) a. Calculate the present value of an investment that pays $1,000 in two years and $4,000 in five years for certain. The present value of the investment is $ . (Round to the nearest dollar.) Enter your answer in the answer box and then click Check Answer. ? 2 parts remaining Clear All