Money & Banking (MGT411)

Semester spring 2019

Assignment no 1

Student Id = MC180405043

Answer

Question 1.
Reference Formulae :

https://courses.lumenlearning.com/boundless-finance/chapter/valuing-bonds/

Solution:
The formulae is Bond Price = C * [(1 - (1+r)-n)/r] + F/ (1+r)n

Future Value  FV = $100

C = 6%

n = 3

r = 3%, 4%, 5%

Present Value  PV = ?

Face Value 100 100 100

Coupon Rate 6 6 6

No of years 3 3 3

Interest 3% 4% 5%

Present Value 108 105 102

2.

Solution:
Formulae Real Interest Rate = Nominal Interest Rate - Inflation Rate

Real Interest Rate = 6% - 4%

Real Interest Rate = 2 %