Reference no: EM131402215
1. Three years ago you took out a 30-year amortizing loan. The loan has a 6% APR with monthly payments (and monthly compounding).
a) What are your monthly payments if your current loan balance is $368; 600?
b) How much interest did you pay on the loan in the past year?
2. On 1/1/10, the following is observed for grade AAA ("risk-free") bonds:
- A bond maturing on 12/31/12 with coupon 6.0% and face value $1000 is selling at $1112.80
- A bond maturing on 12/31/12 with coupon 5.0% and face value $1000 is selling at $1084.00
- A T-bill maturing on 12/31/10 is quoted with a yield to maturity of 2.0408%.
Assume that bond coupons are paid annually on 12/31.
a) Find the price as of 1/1/10 of $1 delivered in one year (p1 ).
b) Find the prices as of 1/1/10 of $1 delivered in two years and three years (p2 and p3 ). (HINT: You may need to solve a system of equations)
c) Write down the cash ‡ows of a three-year risk-free bond that has face value of $1,000 and pays coupon C each year-end.
d) What is the coupon rate (coupon divided by face value) which must be paid for a newly-issued (on 1/1/10) three-year risk-free bond with face value of $1000 to sell at par? ("sell at Par" means market value = face (or principal) value.) Use your prices from a) and b).
e) What is the coupon rate which must be paid for a newly-issued (on 1/1/10) two-year risk-free bond to sell at par?