Chapter 2

Question 1

PV single CF

Answer 1

Question 2

FV

Answer 2

FV = PV ( 1 + r ) ^ t

Question 3

PV and FV
continuous compound rate

Answer 3

Question 4

Fixed Coupon Bond
If coupon = Yield

Answer 4

Bond trade at par

Question 5

Fixed Coupon Bond
If coupon > yield

Answer 5

Trade above par

Question 6

Fixed Coupon Bond
If coupon < yield

Answer 6

Trade at discount to par

Question 7

PV of Perpetuity

Answer 7

Pmt / r

Question 8

Preferred Stock Value

Answer 8

Dividend (Dp) / mrk req return on preferred stock (Kp)

Question 9

Gordon Growth

Answer 9

Question 10

Multistage Growth

Answer 10

Question 11

PE ratio

Answer 11

Question 12

Gordon Growth Ke =

Answer 12

Question 13

Gordon Growth Gc=

Answer 13

Question 14

PV Coupon Bond

Answer 14

Question 15

Finding r

Answer 15

Question 16

Foward Rate
3y2y

Answer 16

Foward year starts in 3 years and last for 2 years.

Question 17

Forward Rate

Answer 17

(1) Calculate Sport Rate
= End / Price start - 1

Question 18

Exchange Rate

Answer 18

Question 19

Hedge Ratio

Answer 19

Question 20

What is implied foward rate for Y2 (F1,1) at end of May and June ?

May PV (1y) = 98.028
May PV (2y) = 95.109

June PV(1y) = 97.402
June PV (2y) = 93.937

Answer 20

Question 21

Exchange Rate Question:

EUR/USD spot rate is 0.70145
1y interest is 3% EUR
1y Interest is 2% USD

What is USD/EUR?

Answer 21

0.70145 * (1.03/1.02) = 0.7083

1/ 0.7083 = 1.4118