Answers
CHAPTER 1
1. a. y = 5
a. y = ln(1) – ln(e) = 0 – 1 = –1
b. y = ln(10) + ln(e) = ln(10) + 1 = 3.3026
2. Annual rate = 5.12%; semiannual rate = 5.05%; continuous rate = 4.99%.
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8. ln(ln(10)) = 0.8340.
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11. The bond will pay 10 coupons of $2, starting in a year's time. In addition, the notional value of the bond will be returned with the final coupon payment in 10 years. The present value, V, is then:
We start by evaluating the summation, using a discount factor of δ = 1/1.05 ≈ 0.95:
Inserting this result into the initial equation we obtain our final result: ...
