Screenshot! Tap to edit 4. Please convert the APR into EAR: APR is 16%; number o

Question

Screenshot! Tap to edit 4. Please convert the APR into EAR: APR is 16%; number of times compounded per year:4 times (quarterly); (3 points) 5. Amortization with equal payments: You borrow a three-year loan of S6,000. T Interest rate is 10% per year, and the loan calls for equal annual payments. a. How much is your annual payment? (3 points) b. Prepare an amortization schedule (or table) for the loan. (3 points) 16. Short-answer questions: a. What is the relationship between the price of a bond and its YTM? (3 poin

Explanation / Answer

4.

EAR = [1+i/m]^m - 1

i - nominal rate

m - no. of compounding periods per year

EAR = (1+0.16/4)^4 - 1 = 16.99%

5.

a.

Annual payment:

Periodic payment of a loan is given by

P = L[r(1 + r)^n]/[(1 + r)^n - 1]

P - Periodic payment = ?

r - Interst rate = 0.1

n - Term = 3

L - Loan amount = 6000

P = 6000*(0.1*(1+0.1)^3)/((1+0.1)^3-1) = 2412.69

Annual payment = $2412.69

b.

Prepare the amortization as below:

6.

Bond price and YTM has inverse relationship. As the YTM increases, bond price decreases and as YTM decreases, bond price increases.

Year Balance at the beginning of period Total payment Amount to interest = Balance *0.1 Amount to principal = Total payment - Amount to interest Ending Balance 1 6000 2412.69 600.00 1812.69 4187.31 2 4187.31 2412.69 418.73 1993.96 2193.35 3 2193.35 2412.69 219.34 2193.35 0.00

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