When reporting numerical values, use the rounding rules I will lay out in a Canvas announcement.

Interest rates and growth rates should be reported in percent. But discount ratios, return ratios and annual return ratios should not be reported in percent, instead, they should be reported as decimal values (as they appear in your calculator or computer). Report all values in decimal rather than fractional form: 1.25 instead of 5/4 or 6.5 percent instead of 6 1/2 percent, etc.

For help with the assignment, please see the Reference notes (Refnotes.pdf), pp. 1-4, and my lecture notes (Lectures2-B.doc), pp. 25-42. Both items will be available in Canvas.

When typing symbols, you can type P0 for the amount lent and CN for the payment at maturity, etc. You don't need to worry about trying to type subscripts and superscripts. For the coupon rate on a coupon bond you can type "ibar," and for an annual return ratio you can type "Rbar."

Question 1 often perplexes student because they think they are supposed to be doing calculations. A few calculations are necessary, but mostly it's just translating prose (in-words) descriptions of credit instruments into symbolic descriptions.

[1] Translate the following descriptions of credit instruments into the notation presented in my lectures and notes.

Note: For the credit instruments in Parts A-C and E, you do not need to provide a complete mathematical description of the payment on the credit instrument in each year, although you do need to describe the payment in every year when there is a payment. For the credit instruments in Parts D and E, you do need to provide a complete mathematical description of the payment in each year.

[1-A] A credit instrument with a five-year term costs $10,000 and returns a single payment of $15,000 at maturity.

[1-B] A credit instrument with a term of three months costs $99,250. It returns a single payment of $100,000 at maturity.

[1-C] A credit instrument costs $50,000. It returns a payment of $35,000 after two years, a payment of $40,000 after five years, and a (final) payment of $25,000 after ten years.

[1-D] A principal-and-interest credit instrument with a term of twelve years costs $9000. It has a face value of $10,000 and a coupon rate of 4 percent.

[1-E] An annuity costs $750,000. It returns a payment of $100,000 at the end of each of the next ten years.

[1-F] A credit instrument with a term of 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 subsequent payment is a third smaller (two-thirds as large as) the preceding payment.