1- Five years ago the price of a small 3 bedroom house in Lynbrook was $345,000.
ID: 2755242 • Letter: 1
Question
1- Five years ago the price of a small 3 bedroom house in Lynbrook was $345,000. This year you notice that the price of the house is now estimated at $395,000. What is the annual compounded rate that the house has appreciated in value over the 5 years?
2-
Analyzing coupon bonds:
10a. Determine today’s price and trading status of the following three bonds given the yield curve for fixed income instruments that day. Assume each has par value (face value) of $1000.
The Yield Curve of December 16, 2015
Market status refers to either discount or premium
Bond
Time to
Maturity
Coupon
Rate
Price
Market
Status
IBM
30
4.72%
EXXON
20
4.15%
10b. What is the yield of the $1,000 Ford Motors 7.4% coupon bond maturing in 30 years if the current price is $1,069.29?
10c. You decide to sell the $1,000 Ford Motors 7.4% coupon bond after holding it for 20 years. If the market rate is 7.1%, what is the selling price of the bond?
10d.How much did you lose or gain if the market rate had been 7.2%
Market status refers to either discount or premium
Explanation / Answer
Let the annual compounded rate be "x"
Initial price = $345,000
Price after 5 years = $395,000
n = 5 years
So the formula is: price after 5 years = initial price*(1+x/100)n
395,000 = 345,000(1+x/100)^5
395,000/345,000 = (1+x/100)^5
1.44928 = (1+x/100)^5
1.027438 = (1+x/100)
1.027438 -1 = x/100
0.027438 = x/100
or x = 2.74%
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