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Oct 5 2014 04:55am
So I have a list of questions that might show up on my exam. Just want to make sure I have the answers right going into it.

First time posting in this forum, so I don't know how the pricing works. Let me know how much FG you want before you post your answers :) Obviously I need to see the work for the math questions.

(warning: some Canada-specific questions)


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1. Some people have argued that if or when Quebec decides to leave Canada, they should not be permitted to use the Canadian dollar as their currency. Evaluate this argument.

2. What are the components of the monetary measure that the Bank of Canada uses as its measure of money as a medium of exchange?

3. Explain why “Bitcoin” may not be considered money.

4. In William Baumol’s The Transactions Demand for Cash: An Inventory Theoretic Approach paper, what is the cost minimizing average money holding? Explain what influence the three important variables have on money demand.

5. A bond with a $7 coupon has exactly 2 years left to maturity. If it is currently priced at $102, what is its yield?

6. What is the difference between a callable bond and a retractable bond. Which should have the higher yield? Why?

7. Suppose that you are currently 25 years old and earn $35,000 per year. You never expect to get a raise and you intend to retire at age 55. If you save 5% of your pay each year and get 12% annually on your savings, how much will be able to withdraw monthly for 30 years following retirement?

8. You want to send your parents on a world cruise in 5 years and you know the cost of the cruise at that time will be $15,000. How much must you deposit in a savings account at the end of each month to accumulate enough money? Your savings account pays 5% interest.

9. What is the value of an annuity that promises to pay $25,000 per year for twenty years when the interest rate is 10 percent? What if the interest rate fell to 5% ? 6. Which $1000 bond has the higher yield to maturity, a 20-year bond selling for $800 with a current yield of 15% or a one-year bond selling for $800 with a current yield of 5%?

10. What is the duration of a bond that has a 6% coupon paid semi-annually and matures in exactly 3 years if the discount rate is currently 10%?

11. An individual is currently 30 years old, wants to work until they are 65 and plans on dying at the age of 85. How much will the individual need to have saved by the time they are 65 if they plan on spending $40,000 per year while retired? You can assume the individual can earn an interest rate of 5.0% and the $40,000 is in addition to any Social security they may receive.

12. Consider a $1000.00 face value bond with a $55 annual coupon and 10 years until maturity. Calculate the current yield; the coupon rate and the yield to maturity under each of the following:
a. The bond is purchased for $940.00
b. The bond is purchased for $1130.00
c. The bond is purchased for $1000.00

13. Your mother just received $500,000 for splitting a Nobel Prize with a co-worker. If she invests the money in a diversified portfolio earning 8 percent interest annually, approximately how long will it take her to become a millionaire?

14. Richard Gorman is 65 years old and about to retire. He has $500,000 saved in his RRSP and would like to withdraw it in equal annual amounts so that nothing is left after 15 years. How much does he have to withdraw each year if he earns 9% on his money?

15. If a three-month Treasury bill sells for $98 and a six-month Treasury bill sells for $96, do they have the same annual yield? Explain.

16. Consider two bonds with $1000 face values, coupon rate of 8%, making annual coupon payments, and exhibiting similar risk characteristics. However, the first bond has five years to maturity whereas the second has 10 years to maturity. The appropriate discount rate for bonds of similar risk is 8%. If the discount rate rises by 200 basis points, what will be the respective price changes of the two bonds?


Thanks to anyone that helps :)
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Oct 6 2014 07:10pm
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