10. a) b) c) How much is $100,000 to be paid December 4 worth on Sept 4 at a 2%

Question

10. a) b) c) How much is $100,000 to be paid December 4 worth on Sept 4 at a 2% discount rate? What if the day-count convention were act/365? what is the act/365 rate equivalent to the act/360 2%? 11. One year ago you invested $100,000 in a two-year asset that pays 4%, annualized (there is only 1 cash flow- after 2 years). a) what is the value of this asset today if the one-year (spot) interest rate is 4% and the two-year (spot) rate is 5967 b) what is the value of this asset today if the one-year (spot) rate is 5% and the two-year rate is 4%? 12, on August 26 you invested $100,000 in a six-month Certificate of Deposit paying 2.25%. (A CD's proceeds are the principal plus interest at the original stated rate.) a) what is its value on September 4 (i.e., how much can you sell it for on Sept 4), assuming rates have not changed? what is its value Sept 4 assuming the relevant market discount rate has increased to 2.5%? b) EXTRA CREDIT QUESTION How many years would it take for $1,000 invested at 3%, annual compounding, to produce proceeds of $1,300 How many years would it take for $1,000 invested at 3%, annual compounding, to double in value? a) b)

Explanation / Answer

10a)=100000/(1+(2%/12))^3
=99501.66
b)rate=2%/365 per day and here for 3 months it is =(2%/365)*90=0.493%
c)rate=2%/360

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