Econ 423: Financial Markets Problem Set 6 - Interest Rates and Asset Prices - Prof. Ralph , Assignments of Financial Market

Download Econ 423: Financial Markets Problem Set 6 - Interest Rates and Asset Prices - Prof. Ralph and more Assignments Financial Market in PDF only on Docsity! PRINT Name _________________________________________________________ Professor Byrns Econ 423: Financial Markets Problem Set 6 Show relevant calculations in an attached Excel spreadsheet. Interest Rates and Asset Prices Interest rates and asset prices vary inversely. The following examples give you a chance to use discounting to compute present values. Rev denotes the net revenue in each year (starting with the present [0]; and parenthetical numbers indicate the time period when a payment is received. Fill in present values in this table: Present Value Q interest rate % Revenues in Time Periods 0 (zero) through 5 # Rev[0] Rev[1] Rev[2] Rev[3] Rev[4] Rev[5] 1. 5% 0 $200 0 0 0 0 2. 10% 0 $200 0 0 0 0 3. 10% 0 $200 $400 $600 0 0 4. 20% 0 $200 $400 $600 0 0 5. 5% $100 $200 $400 $800 $1600 $3200 6. 10% $100 $200 $400 $800 $1600 $3200 Determine rates of return for the following. These investments are “lumpy;” meaning that only discrete integer values are permitted. [“Odd-lots” are precluded—no fractional investments.] Rate of Return # Initial Investment Value One year Later 7. A. $90,000 $108,000 8. B. $52,000 $66,000 9. C. $18,000 $19,000 10. D. $19,048 $20,000 11. E. $10,000 $10,800 12. Rank investments A-E from highest to lowest rate of return. 13. If you had exactly $100,000, which option(s) would you choose? * Why? _______________________________________________________________________