!

1. Find the inverse of 𝑓(𝑥) = "#$

!
𝑦 = "#$

𝑥𝑦 + 3𝑦 = 1

𝑥𝑦 = 1 − 3𝑦
!%$&
𝑥= &

!%$"
𝑓 %! (𝑥) = "

Verify:
!
𝑓(𝑓 %! (𝑥)) = !"#$
#$
$

!
= !"#$%#$
$

!
= !'
"

=𝑥
2. Find the inverse of 𝑔(𝑥) = 𝑥 ( − 2𝑥 + 1

𝑦 = 𝑥 ( − 2𝑥 + 1

𝑦 = (𝑥 − 1)(

±.𝑦 = 𝑥 − 1

𝑥 = 1 ± .𝑦

𝑓 %! (𝑥) = 1 ± √𝑥

Verify:

For 𝑓 %! (𝑥) = 1 + √𝑥

𝑓0𝑓 %! (𝑥)1 = (1 + √𝑥)( − 201 + √𝑥1 + 1

= 𝑥 + 2√𝑥 + 1 − 2 − 2√𝑥 + 1

=𝑥

For 𝑓 %! (𝑥) = 1 − √𝑥

𝑓0𝑓 %! (𝑥)1 = (1 − √𝑥)( − 201 − √𝑥1 + 1

= 𝑥 − 2√𝑥 + 1 − 2 + 2√𝑥 + 1

=𝑥
3. What is the rate of return of a 3-year 7% coupon bond with $1,000 par value priced at
$955?

𝑓(𝑟) = 70(1 + 𝑟)%! + 70(1 + 𝑟)%( +1070(1 + 𝑟)%$

Given that the bond is priced at less than par, the interest rate is greater than the bond’s
coupon payments. Therefore, first try 8%:

𝑓(0.08) = 974.23

Next, try 9%:

𝑓(0.09) = 949.37

Since we have found two values in which the price of the bond is between, we can interpolate
the rate of return.

)! *("#)& )#()& %)! )*(")

𝑓(𝑥 + ℎ! ) = )&

)! (-.-.$0)#(1.1!%)! )-0..($
955 = 1.1!

9.55 = ℎ! (949.37 − 974.23) + 9.7423

0.1923 = 24.86ℎ!

ℎ! = 0.007735

𝑟 ∗ = 0.08 + 0.007735 = 0.087735