Suppose the current one-year rate of interest is 4%. The forecast for future one-year interest...
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Suppose the current one-year rate of interest is 4%. The forecast for future one-year interest rates calls for the rate to rise by 0.5% per year (i.e., the one-year rate next year will be 4.5%, the year after it will be 5%, and so on). Build a worksheet to construct and plot the six-year yield curve.
Problem 2: Suppose the current one-year rate of interest is 4%. The forecast for future one-year interest rates calls for the rate to rise by 0.5% per year (i.e., the one-year rate next year will be 4.5%, the year after it will be 5%, and so on). Build a worksheet to construct and plot the six-year yield curve. Once you have constructed the yield curve, use the information it provides to calculate the NPV of a project with the following annual cash flows: Year 0 1 2 3 4 5 6 CF -$7500 $1,500 $1,500 $1,750 $2,000 $2,500 $3,000 What single discount rate can you use to obtain the same NPV? (IRR)
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