ECON 5000 Midterm: ECON 5000 ECU FinEcon fe summer 2007 sol post
Document Summary
Solutions to problems on final exam: given i = 0. 06 and n = 7, we apply the ordinary annuity pv formula to compute this xed- income security"s price as follows: = . 78: given the yield curve information, the pv of the three payments is given by: Pv = 0. 96 + 0. 92 + 0. 87 = (0. 96+ 0. 92+ 0. 87) = . 0. This pv is the price of the xed-income security: if i = 8%, the price of the bond is given by: If i = 3%, the price of the bond is given by: So, as i goes from 8% to 3%, the price of the bond changes from . 33 to . 88, creating a change in market value equal to: . 33 - . 88 = . 55: straightforward calculations show that the yields to maturity for these zero-coupon bond prices are as follows:
