# Economic Mathematics

You have to SHOW your work (show how you get the answers) to get credit. The answers to these problems are given to you on a separate file.

Below are the formulas for each type of loan and bonds. Use the respective formula regarding a respective question: for example, on questions regarding a simple loan use the simple loan formula, on questions regarding a fixed payment loan question use the fixed payment loan formula, and so on.

You also have to know the formulas for the test.

*Future Value* :

** **FV= future value, PV= present value, i= interest rate, N= number of years.

.

**Present Value:**

FV= future value, PV= present value, i= interest rate, N= number of years.

**Simple loan:**

FV = future value, i = interest rate, n = number of years

**Fixed payment loan:**

FP = fixed payment, i = interest rate, n = number of years

**Coupon bond:**

P = price of bond, i = interest rate, n = number of years, c = coupon payment, and F = face value of the bond.

** **

P = price of bond, C = coupon payment

F = face value, C = coupon payment

**Discount Bond:**

P = price of bond, i = interest rate, n = number of years, F = face value

**Yield to maturity on a discount bond with less than a year of maturity: **

P = price of bond, F = Face value, G = number of days to maturity.

**Yield on discount basis on a bond with less than a year of maturity:**

P = price of bond, F = face value

**Consol bond:**

#### P = price of bond, i = interest rate

*Bring the answers to the following questions to Class *

**simple loan:**

- End of ten years you will pay back $20,000. If I = 6% , how much is the loan amount now.

- If you borrowed $9900 at i = 10% to pay back at the end of 15 years, how much money do you pay back?

- You will receive $35,000 at the end of two Its present value is $20,000. The yield to maturity equals what?

**fixed payment loan**:

- i = 9%, loan = $15,000, 5 year loan. The fixed payment =___.

- The fixed payment = $7000,
- i= 9%, 3 years, loan =___

**coupon bond**:

- coupon payment = $100, face value = $6000, i = 5%, 4 years, a) price of bond =___ b) coupon rate =___ c) current yield =____

- Coupon rate = 5%, face value = $12,000, i = 7% a) price of bond for a) 1 year bond=___, b) 2 year bond =____ c) 3 year bond =_____

- if i increases to 12% , what happens to each of the prices (in a) above.

**discount bond (zero coupon bond):**

- Face value = $20,000, price = $19,000, 1 year bond, ytm = _

- Face value = $20,000, price 19,000, 1 year bond , number of days to maturity = 90 days. a) ytm =_______ b) yield on discount basis =___

- Face value = $15,000, 1 year bond, ytm = 6%, number of days to maturity = 180 days. A) price of bond =_______ b) yield on discount basis =___

**console bond:**

- i = 7%, price of bond = $15,000. coupon payment = _

- Coupon payment = $200,000 , i = 7%, price of bond =__

- Price of bond = $50,000 coupon payment = $300, ytm = __

**Other Problems**

** **

- average interest rate equals 6%, You promised some one to pay her/him $10,000 at the end of 20 years. If the person insist to paid cash now how much should you give her/him now?

- Let’s say I am supposed to give you $12,000 at the end of 5 years, $16,000 at the end of 7 years, and another $15,000 at the end of 9 years. If the average rate of interest is 6% and you want to get your money
*now*instead of waiting, how much should I give you?

- If the average rate of interest is 5%, and you want to receive $15,000 a year from a trust fund, how much money should you put in the trust fund?

- If the average rate of interest is 5%, and you deposit $2,000 a year during the coming 3 years how much money would you have at the end of the 3
^{RD}year?.

- If average interest rate is 7%, and tuition is currently $6,000 a year, how much would it be at the end of 3 years?

- You want your mother to receive $60,000 per year, if the average rate of interest is 5.5%, how much money should you put in a trust fund so your mother would get $60,000 per year?

**10 %**discount on an order above

**$ 100**

Use the following coupon code :

Whizz15

**Category**: Sample Questions