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1. Consider a 20-year (monthly-payment), 8%, $80,000 mortgage with 2 points prepaid interest up front. What is the yield to maturity?
8.00%
8.12%
8.20%
8.27%
2. Suppose the market yield on mortgages is 9.2% in bond equivalent terms (BEY, or "coupon equivalent", CEY). What is the effective yield (EAY or EAR)?
9.41%
9.52%
9.30%
9.20%
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Assume annual compounding of interest for these problems. Assume 10% annual interest rate volatility. Calculate the binomial interest rate tree using the 2-year on-the-run issue and the 3-year on-the-run issue.
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How can investments in stock increase your wealth? How would you calculate the value of a stock investment of a single sum over time?
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On-The-Bubble Corporation, a US company, plans to issue $100,000,000 in par value of new 10-year maturity, 0% coupon rate, senior unsecured bonds. The issue would be priced at 68-00 (68% of par value) and the $68,000,000 proceeds from this issue will..
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The real risk-free rate of interest (r*) is 3 percent. Inflation is expected to be 4 percent this coming year, jump to 5 percent next year, and increase to 6 percent the year after. According to the expectations theory, what should be the interest ra..
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