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Consider a perpetuity that has a coupon of $100 per year

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Reference no: EM13321295

1. You borrowed $1000 on January 1 and must repay

a total amount of $1060 exactly a year later.

a. What is the interest paid?

b. What is the interest rate?

2. Consider a perpetuity that has a coupon of $100 per year.

a. What is the price of the perpetuity if the yield to maturity is 5%?

b. If the yield to maturity doubles, what will happen to the price?

3. Suppose that the interest rate is 5%. Which of the following statements are true and which are false?

a. $57 today is equivalent to $61 one year from now.

b. $5000 today is equivalent to $5250 one year from now.

c. $37.80 one year from now is equivalent to $36today.

Reference no: EM13321295

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