To what does the invested amount grow to

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Reference no: EM133508497

Homework: Interest Rate Conventions

In this homework, you will solve problems on Interest Rate Conventions.

Instructions

Answer the following questions (found in the Chapter 1 Slides):

I. Suppose an investment of $1 made today will be worth $1.03 in three months.

A. If the interest rate l is expressed in the Actual/360 convention and the three-month horizon has 91 days in it, what is l ?

B. If the interest rate r is expressed in the continuous-compounding convention and we treat three months as 1/4 years, what is r?

II. Consider an investment of $1 over a horizon of one month.

A. If the interest rate l expressed in the Actual/360 convention is 4% and the one-month horizon has 31 days in it, to what does the invested amount grow to?

B. If you had to express the same outcome using a continuous-compounding convention, and we treat one month as 1/12 of a year, what is the continuously-compounded rate r?

III. Consider an investment of $1 over a horizon of one month.

A. If the interest rate r expressed in the continuously-compounded terms is 4% and we treat the one month horizon as 1/12 of a year, to what does the invested amount grow?

If you had to express the same outcome using an Actual/360 convention and the one month horizon has 31 days in it, what is the rate l?

Reference no: EM133508497

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