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# Class Note for ECON 121 with Professor Wei at GW

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This 2 page Class Notes was uploaded by an elite notetaker on Saturday February 7, 2015. The Class Notes belongs to a course at George Washington University taught by a professor in Fall. Since its upload, it has received 25 views.

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Date Created: 02/07/15
Examples on Computing Present Value and Yield to Maturity Econ 121 Mishkin Chapter 4 Materials Instructor Chao Wei A Useful Formula 1 7 an1 aa2a3maquot l 1 Special Case When 0 lt a lt 1 and n A 0 aa2a3wa 0 2 1 7 a1 Example 1 Calculate the present value for the following payments 1 500 two years from now when the interest rate is 5 3335 e 2 100 every three years for 12 years when the interest rate is 10 PV 7 100 100 100 100 10 13 10116 10119 101112 1 1 1 100 F mru We can apply the formula in equation 1 by recognizing that a and n 4 in this case Applying the formula we have 1 7141 PV 100 X W T 2051851 1 W 5 100 every three years for 12 years when the interest rate is 10 plus 50 bonus at the end of 12 years PV 100 100 100 100 50 10113 10116 10119 101112 101112 221178 Example 2 Suppose you buy a 1000 facevalue coupon bond with a coupon rate of 10 a maturity of4 years 1 Suppose you purchase the bond at a price of 1000 what is the yield to maturity First write down the formula for yield to maturity 1000 X 10 1000 X 10 1000 X 10 1000 X 10 1000 1 239 1 292 1 293 1 294 1 294 239 10 1000 2 Suppose the purchase price is 800 what is the yield to maturity 1000 X 10 1000 X 10 1000 X 10 1000 X 10 1000 1 239 1 292 1 293 1 294 1 294 239 17134 800 5 Suppose the purchase price is 1200 what is the yield to maturity 1000 X 10 1000 X 10 1000 X 10 1000 X 10 1000 1 239 1 292 1 293 1 294 124 2394143 1200

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