Calculate the present value of receiving

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Question - Suppose the term structure of? risk-free interest rates is as shown? below:

Term

Rate? (EAR ?%?)

1 yr

1.94

2 yr

2.33

3 yr

2.66

5 yr

3.26

7 yr

3.77

10 yr

4.28

20 yr

5.03

Required -

a. Calculate the present value of an investment that pays $1,000 in two years and $2,000 in five years for certain.

b. Calculate the present value of receiving $400 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.

c. Calculate the present value of receiving $1,900 per? year, with? certainty, for the next 20 years. Infer rates for the missing years using linear interpolation.

Reference no: EM132921968

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