ECON 5000 Midterm: ECON 5000 ECU FinEcon fe summer 2002 sol
Document Summary
Solutions to problems on final exam: given i = 0. 05 and n = 6, we apply the ordinary annuity p v formula to compute this xed- income security"s price as follows: = . 35: given the yield curve information, the p v of the three payments is given by: P v = 0. 97 120 + 0. 93 120 + 0. 91 120 = 120 (0. 97 + 0. 93 + 0. 91) = . 20. This p v is the price of the xed-income security: since payments are made each period, it clearly is not a zero-coupon bond. This is implies that it is neither a premium, discount, nor par bond. Thus, option (e) is the correct choice: straightforward calculations show that the yields to maturity for these zero-coupon bond prices are as follows: 1 (1+i) = 0. 9615 (1+i)2 = 0. 9070 (1+i)3 = 0. 8386 (1+i)4 = 0. 7629.
