We promise to pay you $2000 at the end of each of the next 5 years. If you estimate that you can obtain a nominal interest rate of 6% (compounded monthly), for the years to come, for what amount are you willing to exchange this promise?

2-Assuming an average annual inflation rate of 2% over the next 10 years, what will be your average annual real return associated with an investment offering an average annual return of 4.9968%?

3-A new standard bond with a face value of $1000 and a price of $1128.65 has a coupon rate of 7% and a required annual rate of return of 6% (compounded semi-annually).

What is its deadline?


4-How many quarters does it take to triple the value of an investment, if the interest rate is 3% per semester?


5-A common stock is expected to pay a $0 dividend in one semester, then a $2 dividend in a year, then a $2.20 dividend in three semesters, then a $2.40 dividend in two years, then a dividend of $2.6 at the end of each of the following semesters over an infinite number of periods. What is its theoretical value if the required rate of return is 5% per semester?


6- You are promised $4,000 in 3 years. If you estimate that you can get an interest rate of 7% per year for the next 3 years, how much are you willing to exchange this promise for?

Answer rating: 100% (QA)

1 To calculate the amount you are willing to exchange for the promise to pay 2000 at the end of each of the next 5 years you need to determine the present value of these future cash flows Since the in... View the full answer