Midterm I review

Question 1

Find R_monthly if required rate of return is 7% compounded annually

Answer 1

(1 + r) = (1 + R)^m

(1 + .07)^1/12 = (1 + R)

R =.00565

Question 2

DF₁

DF₂

Answer 2

1/(1+r)

1/(1+r)²

Question 3

Growing annuity formula

when r = g

Answer 3

PV = (C * N)/ (1 + r)

Question 4

annual yield

Answer 4

r_a,1

“annual interest rate of __% compounded annually”

Question 5

Arbitrage

Answer 5

offset future flows and make money