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Chapter 4: Q.14 (page 134)
If the interest rate is 15%, what is the present value of a security that pays you \(1,100 next year, \)1,250 the year after, and $1,347 the year after that?
The present value is $2787.38
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Suppose today you buy a coupon bond that you plan to sell one year later. Which part of the rate of return formula incorporates future changes into the bond鈥檚 price?
Which \(10,000 bond has the higher yield to maturity, a 20-year bond selling for \)8,000 with a current yield of 20% or a 1-year bond selling for $8,000 with a current yield of 10%?
Property taxes in a particular district are 2% of the purchase price of a home every year. If you just purchased a \(150,000 home, what is the present value of all the future property tax payments? Assume that the house remains worth \)150,000 forever, property tax rates never change, and a 4% interest rate is used for discounting.
To help pay for college, you have just taken out a \(1,000 government loan that makes you pay \)126 per year for 25 years. However, you don鈥檛 have to start making these payments until you graduate from college two years from now. Why is the yield to maturity necessarily less than 12%? (This is the yield to maturity on a normal \(1,000 fixed-payment loan on which you pay \)126 per year for 25 years.)
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