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100 % ECO 3223 Economics of Money, Banking, and Monetary Policy Due Sept 11, 2009 at midnight The homework is 2 pages and there are 2 pages of formulas Homework #2: RORs, RETs, and Yields Instructions: First turn on ‘Track Changes’. Then show the formula used to calculate the answer and show all calculation steps. Place final answer on the provided line.
1) The rate of return (RET) on a 10 percent coupon bond that initially sells for $1,000 and sells for $1,100 next year is: _____20%________. 2) Rate of Return (RET): 3) C + Pt +1 − Pt RET = 4) pt 5) Where: RET = Return from holding the bond from time t to time t+1 6) Pt = price of the bond at time t 7) Pt+1 = price of the bond at time t+1 8) C = Coupon payment C = F x r = 1000 x 10% = 100 RET = 100 + 1100 – 1000 / 1000 = 200/1000 = .2 = 20%
9) The rate of return (RET) on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 the next year is: _______0%______. 10) Rate of Return (RET): 11) C + Pt +1 − Pt RET = 12) pt 13) Where: R...
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