10, a) A security pays $100 in one year and $100 in two years. The one-year disc

Question

10, a) A security pays $100 in one year and $100 in two years. The one-year discount rate is 4%, the two- year is 4.92%, what is its price? b) What is the "common" discount rate i.e., the same discount rate is applied to both years such that it produces the price you calculate in a)? This is known as the security's "yield-to-maturity" (or "yield"). 11. a) A security pays $100 in one year and $233 in two years. The one-year discount rate is 4%, the two- year is 4.92%, what is its price? b) What is the security's "yield-to-maturity? 12. A five-year annuity pays $22.94. At a price of $100, what is its yield? 13, what is the percentage price change of the security in #10 if: a) b) c) d) the one-year discount rate increases by 1% the two-year discount rate increases by 19 both discount rates increase by 1%? the yield-to-maturity increases by 1%? 14, what is the percentage price change of the security in #11 if the yield-to-maturity increases by 1%? 15, what is the percentage price change of the annuity in #12 if the yield-to-maturity increases by 1%?

Explanation / Answer

1.
a.
=100/1.04+100/1.0492^2

=186.9951661
b.
=>100/(1+r)+100/(1+r)^2=186.9951661
=>r=4.6019%

2.
a.
=100/1.04+233/1.0492^2

=307.8141217
b.
=>100/(1+r)+233/(1+r)^2=307.8141217
=>r=4.7498%

P.S. I am not allowed to answer more than 4 questions

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