Question

Suppose the risk-free interest rate is 4.8% a. Having 5600 today is equivalent to having what amount in one year? b. Having 5600 in one year is equivalent to having what amount today? c. Which would you prefer, $600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? a. Having 5600 today is equivalent to having what amount in one year? Having 5600 today is equivalent to having $ 650 in one year. (Round to the nearest cent.) b. Having 5600 in one year is equivalent to having what amount today? Having 5600 in one year is equivalent to having today. (Round to the nearest cent.) c. Which would you prefer, $600 today or $600 in one year? (Select the best choice below.) A. $600 in one year B. $600 today Does your answer depend on when you need the money? Why or why not? (Select the best choice below.) A. Yes, because if you did need the money today it is more valuable than $600. B. No, because if you did need it you could borrow the $600. C. Yes, because if you didn't need it, it's not worth $600. OD. No, because if you didn't need it then the 5600 can be invested and you could have more than $600 in one year.

Answer 1

1. a. Having $600 today is equivalent to having what amount in one year = 600* (1+4.8%) = 628.8

b. Having $600 in one year is equivalent to having what amount today =  600/ (1+4.8%) = 572.52

c. Option d, no, because if you didn't need it then the $600 can be invested and you could have more than $600 in one year

2. Option C, Payments are made on bonds until a final repayment​ date, called the term date of the bond.

3. The par coupon rate = 5.70%

4. Option C, All borrowers besides the US treasury have some risk of default.