FREE ACTUARY Finance and Economics Questions and Answers
What is the present value of $2,000 to be received 5 years from now if the annual discount rate is 6%?
Correct!
Wrong!
Here, FV=2,000, 𝑟=0.06, and t=5: PV= 2,000/(1+0.06)5 = 2,000/1.338225 =1,586.87
A bond with a face value of $1,000 pays annual coupons of $50 and has 4 years to maturity. If the market interest rate is 6%, what is the bond price?
Correct!
Wrong!
Total bond price: 𝑃𝑉total=173.26+792.94=980.20
You invest $1,000 at an annual interest rate of 5% compounded annually. What will the investment be worth after 3 years?
Correct!
Wrong!
The formula for compound interest is: FV=PV⋅(1+r) t Here, PV=1,000, 𝑟=0.05 and t=3: FV=1,000⋅(1+0.05) 3=1,000⋅(1.157625)=1,157.63
An investor has two assets in a portfolio: Asset A: Expected return = 8%, weight = 60% Asset B: Expected return = 12%, weight = 40% What is the portfolio’s expected return?
Correct!
Wrong!
The portfolio's expected return is a weighted average of the asset returns: E(R p )=w A ⋅R A+w RB E(R p )=(0.6⋅0.08)+(0.4⋅0.12)=0.048+0.048=0.104=10.4%
If the demand for a good increases and the supply remains unchanged, what happens to the equilibrium price and quantity?
Correct!
Wrong!
When demand increases and supply stays constant, the demand curve shifts to the right. This results in a higher equilibrium price and a larger equilibrium quantity. The market adjusts to the higher willingness of consumers to pay.