Problem 1.
Mortgage – Periodic Interest Rate
You have
just purchased a home by borrowing$400,000for
30-years at a fixed APR of3.87%.
The loan payments are monthly and interest is compounded monthly.
What is the periodic interest rate?
(I.e., what is the monthly interest rate?)
*Make sure
to input all percentage answers as numeric values without symbols, and use four
decimal places of precision. For example, if the answer is 6%, then enter
0.0600.
2.
Problem 2.
Mortgage – Effective Annual Rate You have just purchased a home by borrowing$400,000 for 30-years at a fixed APR of3.87%. The loan payments are monthly and
interest is compounded monthly.
What is the effective annual rate on the
loan? (I.e., what is the interest rate once we take into account compounding?)
*Make sure
to input all percentage answers as numeric values without symbols, and use four
decimal places of precision. For example, if the answer is 6%, then enter
0.0600.
3.
Problem 3.
Mortgage – Payment
You have
just purchased a home by borrowing$400,000for
30-years at a fixed APR of3.87%.
What is the monthly mortgage payment?
(Hint: A
mortgage is just an annuity where the borrowed amount is the present value of
the annuity. So, use the annuity formula, but solved for the cash flow in terms
of the present value:
CF =PV×R/k1−(1+R/k)−T×k)
*Make sure
to input all currency answers without any currency symbols or commas, and use
two decimal places of precision.
4.
Problem 4.
Savings
You put$1,000into a savings account today that offers
5%APR with semi-annual
compounding (i.e., two times per year).
How much money will you have in the
account after 2 years?
*Make sure
to input all currency answers without any currency symbols or commas, and use
two decimal places of precision.
5.
Problem 6.
Borrowing Rates
Consider
the following figure that presents three yield curves:
1High Quality Market (HQM) for
Corporate Bonds (i.e., AAA, AA, or A rated bonds)
2AAA-rated municipal bonds
3Treasury securities
Based on
the yield curves in the figure, what is the approximate cost of borrowing for
highly rated corporate borrowers over a 5-year term?
3.54%
2.27%
None of
the answers are correct
1.50%
0.00%
6.
Problem 6.
Borrowing Rates
Consider
the following figure that presents three yield curves:
1High Quality Market (HQM) for
Corporate Bonds (i.e., AAA, AA, or A rated bonds)
2AAA-rated municipal bonds
3Treasury securities
Based on
the yield curves in the figure, what is the approximate cost of borrowing for
highly rated corporate borrowers over a 20-year term?
0.00%
1.50%
4.66%
3.54%
None of
the answers are correct
7.
Problem 7.
Bond Yield-to-Maturity
A
one-year zero coupon bond costs
$99.43today. Exactly one year from today, it will pay$100.
What is the annual
yield-to-maturity of the bond? (I.e., what is the discount rate one needs to
use to get the price of the bond given the future cash flow of$100in one year?)
*Make
sure to input all percentage answers as numeric values without symbols, and use
four decimal places of precision. For example, if the answer is 6%, then enter
0.0600.
8.
Problem 8.
Bond Yields
You have
a treasury bond that pays$100one year from today and$1,100two years from today.
You
notice that the yield-to-maturity on a one year-zero coupon treasury bond is1%and the yield-to-maturity on a two year-zero coupon
treasury bond is2%.
What should the price of your
bond be?
*Make
sure to input all currency answers without any currency symbols or commas, and
use two decimal places of precision.
