Interest rate conventions | Business & Finance homework help

Interest rate conventions

Task 

In this assignment, you will solve problems on Interest Rate Conventions.

Instructions 

  1. Answer the following questions (found in the Chapter 1 Slides):
  2. Suppose an investment of $1 made today will be worth $1.03 in three months.
    1. 1. If the interest rate ℓ  is expressed in the Actual/360 convention and the three-month horizon has 91 days in it, what is ℓ ?
    2.  If the interest rate r is expressed in the continuous-compounding convention and we treat three months as 1/4 years, what is r ?
  3. Consider an investment of $1 over a horizon of one month.
    1.  If the interest rate ℓ  expressed in the Actual/360 convention is 4%  and the one-month horizon has 31 days in it, to what does the invested amount grow to?
    2. If you had to express the same outcome using a continuous-compounding convention, and we treat one month as 1/12 of a year, what is the continuously-compounded rate r ?
  4. Consider an investment of $1 over a horizon of one month.
    1. If the interest rate r expressed in the continuously–compounded terms is 4% and we treat the one month horizon as 1/12 of a year, to what does the invested amount grow?
    2. If you had to express the same outcome using an Actual/360 convention and the one month horizon has 31 days in it, what is the rate ℓ ?
  5. Please, upload xls, xlsx file.
  6. Please, use the full computing power of Excel.

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