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Suppose the term structure of risk-free interest rates is as shown below:
Term (years)
1
2
3
4
5
Rate
1

#### Suppose the term structure of risk-free interest rates is as shown below:
Term (years)
1
2
3
4
5
Rate
1

######
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Suppose the term structure of risk-free interest rates is as shown below:

Term (years) |
1 |
2 |
3 |
4 |
5 |

Rate |
1.99% |
2.22% |
2.74% |
3.03% |
3.33% |

**a. Calculate the present value of an investment that pays $1000 in two years and $2000 in five years for certain.**

*Answer: the present value is* ____ $**.** *(round to two decimals)*

**b. Calculate the present value of an investment that pays $100 at the end of each of year from 1 to 5 for certain.**

*Answer: the present value is ____* $*. (round to two decimals)*

**c. If you wanted to value the investment in b. correctly using the annuity formula, which discount rate (%) should you use?**

*Answer: the discount rate is ___* %*. (round to three decimals)*

*(Hint: value correctly means that the present value of payments using the annuity formula equals the PV that has been computed in b.)*

**d. What is the shape of the yield curve given the term structure in the Table above?**

*Answer: Yield curve is _____ . (fill in "increasing" or decreasing")*