Page 3 - Test
P. 3
3.
Trade @ $140 CF(risk-free): $150
st
th
0 year 1 year
As there is no arbitrage opportunity,
140 = 150 / (1+r)
where r is current risk-free interest rate.
Thus,
Current risk-free interest rate, r = 7.14%
4.
0 10,000 20,000 30,000
nd
st
rd
th
0 year 1 year 2 year 3 year
(a)
PV = 10,000 + 20,000 + 30,000
1
(1+3.5%) (1+3.5%) 2 (1+3.5%) 3
PV = 55,390
(b) Future Value (FV) = Present Value (PV) * (1+r) 3
FV = 55,390 * (1+3.5%) 3
FV = 61,412.25
