(2)Economics of Money, Banking and Financial Markets

Answer the question @ 2 points, show work. (potential answer)

1. What is the yield to maturity (ytm or r) from a $300 note purchased for $200 due in four years? (7.6, 8.9, 10.7)

2. What is the future value (F) of $100 invested at 4% for 20 years? (194, 219, 265)

3. What is the term (t) for an investment at 5 % to triple in value? (18.3, 21.9, 22.5)

4. If the interest rate is 6%, what is the present value (P) of $1100 at 6% for seven years? (633, 732, 798)

5. Which loan has the highest ytm? Lend 200, repaid 300 in 3 years or lend 200, repaid 500 in 5 years? (14.34, 14.47, 20.1)

6. What is the present value of 10 annual $100 payments when ytm is 5%? (772,846, 986)

7. What is the present value of an 8 year 10% $1000 bond when ytm is 4%. (1323, 1404, 1899)

8. What is the present value of a 6% 3 year $1000 bond? when ytm is 4%? when ytm is 8%? (948, 971, 1000, 1056, 1122)

9. Which $1000 8% bond has the largest present value when the current ytm is 2%: a bond which matures in 2 years or one that matures in 20 years? (1116 1402, 1981)

10. The State of Washington operates a million dollar lottery that pays its winner 20 equal annual payments. The interest rate to finance this lottery has been 4%. How many $1 tickets do have to sold for the lottery to break even (ignoring operating expenses)? If interest rate falls 2% should the State Lottery Commission increase the number of million dollar lotteries it operates? (491m, 818m, 1022m)