Homework: Assignment #3 (Chs 5-6) Question 13, P5-29 (similar to) Part 1 of 3 Suppose...
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Homework: Assignment #3 (Chs 5-6) Question 13, P5-29 (similar to) Part 1 of 3 Suppose the term structure of risk-free interest rates is as shown below: 1 yr 1.92 2 yr 2.45 Term Rate (EAR %) 3 yr 2.77 5 yr 3.26 HW Score: 0%, 0 of 15 points O Points: 0 of 1 7 yr 3.71 a. Calculate the present value of an investment that pays $2,500 in two years and $3,000 in five years for certain. The present value of the investment is $. (Round to the nearest dollar.) 10 yr 4.01 Save 20 yr 5.07 a. Calculate the present value of an investment that pays $2,500 in two years and $3,000 in five years for certain. b. Calculate the present value of receiving $500 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year 4 would be the average rate in year 3 and year 5.) c. Calculate the present value of receiving $2,200 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.)
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