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##### BUSN 602 Week 3 Homework 2014......................................................

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Discussion Question 8-2;Describe how interest rates may adjust to an unanticipated increase in inflation.;Problem 8-1;Assume investors expect a 2.0 percent real rate of return over the next year. If inflation is expected to be 0.5 percent, what is the expected nominal interest rate for a one-year U.S. Treasury security?;Problem 8-2;A one-year U.S. Treasury security has a nominal interest rate of 2.25 percent. If the expected real rate of interest is 1.50 percent, what is the expected annual inflation rate?;Problem 8-7;Inflation is expected to be 3 percent over the next year. You desire an annual real rate of return of 2.5 percent on your investments.;a. What nominal rate of interest would have to be offered on a one-year Treasury security for you to consider making an investment?;b. A one-year corporate debt security is being offered at 2 percentage points over the one-year Treasury security rate that meets your requirement in (a). What would be the nominal interest rate on the corporate security?;Problem 8-8;Find the nominal interest rate for a debt security given the following information: real rate = 2%, liquidity premium = 2%, default risk premium = 4%, maturity risk premium= 3%, and the inflation premium = 3%.;Discussion Question 9-2;Briefly describe what is meant by the time value of money.;Problem 9-3;Determine the future values (FVs) if $5,000 is invested in each of the following situations;a. 5 percent for ten years;b. 7 percent for seven years;c. 9 percent for four years;Problem 9-17;Use Excel to answer the following questions;a. What is the present value (PV) of $359,000 that is to be received at the end of 23 years if the discount rate is 11 percent?;b. How would your answer change in Part (a) if the $359,000 is to be received at the end of 20 years?;Problem 9-19;Use Excel to answer the following questions;a. What would be the future value (FV) of $19,378 invested now if the money remains deposited for eight years, the annual interest rate is 18 percent, and interest on the investment is compounded semiannually?;b. How would your answer for (a) change if quarterly compounding were used?

Paper#28488 | Written in 18-Jul-2015

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