EFFECTIVE ANNUAL RATE ANNUAL PERCENTAGE RATE

0.0580 0.0580
Compounding
Period T=(1/n) rf(T) APR rf(T) EAR
1 year 1.0000 5.7977% 5.7977% 5.7977% 5.7977%
6 months 0.5000 2.8580% 5.7160% 2.8989% 5.8817%
1 quarter 0.2500 1.4189% 5.6758% 1.4494% 5.9250%
1 month 0.0833 0.4708% 5.6491% 0.4831% 5.9543%
1 week 0.0192 0.1084% 5.6389% 0.1115% 5.9657%
1 day 0.0027 0.0155% 5.6363% 0.0159% 5.9686%

EFFECTIVE ANNUAL RATE ANNUAL PERCENTAGE RATE

0.0286 0.0286
Compounding
Period T=(1/n) rf(T) APR rf(T) EAR
1 year 1.0000 0.0286 0.0286 0.0286 0.0286
6 months 0.5000 0.0142 0.0284 0.0143 0.0288
1 quarter 0.2500 0.0071 0.0283 0.0071 0.0289
1 month 0.0833 0.0024 0.0282 0.0024 0.0290
1 week 0.0192 0.0005 0.0282 0.0005 0.0290
1 day 0.0027 0.0001 0.0282 0.0001 0.0290

EFFECTIVE ANNUAL RATE ANNUAL PERCENTAGE RATE

0.0142 0.0142
Compounding
Period T=(1/n) rf(T) APR rf(T) EAR
1 year 1.0000 0.0142 0.0142 0.0142 0.0142
6 months 0.5000 0.0071 0.0141 0.0071 0.0142
1 quarter 0.2500 0.0035 0.0141 0.0035 0.0143
1 month 0.0833 0.0012 0.0141 0.0012 0.0143
1 week 0.0192 0.0003 0.0141 0.0003 0.0143
1 day 0.0027 0.0000 0.0141 0.0000 0.0143

EFFECTIVE ANNUAL RATE ANNUAL PERCENTAGE RATE

0.0047 0.0047
Compounding
Period T=(1/n) rf(T) APR rf(T) EAR
1 year 1.0000 0.0047 0.0047 0.0047 0.0047
6 months 0.5000 0.0024 0.0047 0.0024 0.0047
1 quarter 0.2500 0.0012 0.0047 0.0012 0.0047
1 month 0.0833 0.0004 0.0047 0.0004 0.0047
1 week 0.0192 0.0001 0.0047 0.0001 0.0047
1 day 0.0027 0.0000 0.0047 0.0000 0.0047

EFFECTIVE ANNUAL RATE ANNUAL PERCENTAGE RATE

0.0010 0.0010
Compounding
Period T=(1/n) rf(T) APR rf(T) EAR
1 year 1.0000 0.0010 0.0010 0.0010 0.0010
6 months 0.5000 0.0005 0.0010 0.0005 0.0010
1 quarter 0.2500 0.0003 0.0010 0.0003 0.0010
1 month 0.0833 0.0001 0.0010 0.0001 0.0010
1 week 0.0192 0.0000 0.0010 0.0000 0.0010
1 day 0.0027 0.0000 0.0010 0.0000 0.0010

EFFECTIVE ANNUAL RATE ANNUAL PERCENTAGE RATE

0.0002 0.0002
Compounding
Period T=(1/n) rf(T) APR rf(T) EAR
1 year 1.0000 0.0002 0.0002 0.0002 0.0002
6 months 0.5000 0.0001 0.0002 0.0001 0.0002
1 quarter 0.2500 0.0001 0.0002 0.0001 0.0002
1 month 0.0833 0.0000 0.0002 0.0000 0.0002
1 week 0.0192 0.0000 0.0002 0.0000 0.0002
1 day 0.0027 0.0000 0.0002 0.0000 0.0002
ERCENTAGE RATE P(T) 94.52
0.0580

EAR
5.7977%
5.8817%
5.9250%
5.9543%
5.9657%
5.9686%

ERCENTAGE RATE P(T) 97.22

0.0286

EAR
0.0286
0.0288
0.0289
0.0290
0.0290
0.0290

ERCENTAGE RATE P(T) 98.60

0.0142

EAR
0.0142
0.0142
0.0143
0.0143
0.0143
0.0143

ERCENTAGE RATE P(T) 99.53

0.0047

EAR
0.0047
0.0047
0.0047
0.0047
 0.0047
0.0047

ERCENTAGE RATE P(T) 99.90

0.0010

EAR
0.0010
0.0010
0.0010
0.0010
0.0010
0.0010

ERCENTAGE RATE P(T) 99.98

0.0002

EAR
0.0002
0.0002
0.0002
0.0002
0.0002
0.0002
Assignment.
n Find EAR and APR through equivalence formu
different treasuries with different compounding pe
and P(T)= discount price (par value is $100).
n Compounding period,1 year, 6 months, one quarte
month, one week, one day.
n P(T), 94.52, 97.22, 98.60, 99.53, 99,90, 99.98.
n Compute the APR and EAR of one day bond and
that holds.
that holds.
 h equivalence formula for
erent compounding periods
value is $100).
6 months, one quarter, one

.53, 99,90, 99.98.

of one day bond and show
 EFFECTIVE ANNUAL RATE ANNUAL PERCENTAGE RATE
0.0580 0.0580
Compoundi
ng Period T=(1/n) rf(T) APR rf(T) EAR
1 year 1.0000 0.0580 0.0580 0.0580 0.0579771
6 months 0.5000 0.0286 0.0572 0.0290 0.0588175
1 quarter 0.2500 0.0142 0.0568 0.0145 0.0592499
1 month 0.0833 0.0047 0.0565 0.0048 0.0595428
1 week 0.0192 0.0011 0.0564 0.0011 0.0596566
1 day 0.0027 0.0002 0.0564 0.0002 0.0596859

EFFECTIVE ANNUAL RATE ANNUAL PERCENTAGE RATE

0.0580 0.0580
Compoundi
ng Period T=(1/n) rf(T) APR rf(T) EAR
1 year 1.0000 0.0580 0.0580 0.0580 0.0579771
6 months 0.5000 0.0286 0.0572 0.0290 0.0588175
1 quarter 0.2500 0.0142 0.0568 0.0145 0.0592499
1 month 0.0833 0.0047 0.0565 0.0048 0.0595428
1 week 0.0192 0.0011 0.0564 0.0011 0.0596566
1 day 0.0027 0.0002 0.0564 0.0002 0.0596859
 Face Value 100.00 Period
1 year

EAR (IBF) 6 months

0.05798 1 quarter
0.05882 1 month
0.05925 1 week
0.05954 1 day
0.05966
0.05969

Face Value 100.00

EAR (IBF)
0.05798
0.05882
0.05925
0.05954
0.05966
0.05969
P(T)
94.52

97.22
98.6
99.53
99.9
99.98
a) Stock Price 100

State of the Market Probability Year-End Price Sell?

Excellent 0.25 126.50 NO
Good 0.45 110.00 NO
Poor 0.25 89.75 YES
Crash 0.05 46.00 YES

b)
State of the Market Probability Year-End Price+Dividend+Put HPR
Excellent 0.25 131.00 17.0%
Good 0.45 114.00 1.8%
Poor 0.25 113.50 1.3%
Crash 0.05 112.00 0.0%

CALL OPTION

Stock Price 100 Exercise Price 110

Option Price 12
State of the Market Probability Year-End Price Buy?
Excellent 0.25 126.50 Yes
Good 0.45 110.00 No
Poor 0.25 89.75 No
Crash 0.05 46.00 No

b)
State of the Market Probability Year-End Price+Dividend+Call HPR
Excellent 0.25 147.50 31.7%
Good 0.45 114.00 1.8%
Poor 0.25 93.25 -16.7%
Crash 0.05 48.00 -57.1%
 Exercise Price 110 c)
Option Price 12
Difference between Stock Price and Exercise Price HPR It makes sure that the investor's ori
0.00 -100.00% HPR is
0.00 -100.00%
20.25 68.75%
64.00 433.33%
Difference between Stock Price and Exercise Price HPR
16.50 37.50%
0.00 -100.00%
0.00 -100.00%
0.00 -100.00%
makes sure that the investor's original investment does not fall below the initial value, i.e.,
HPR is greater than or equal to 0%