You plan to deposit $1,000 in Year 1, $1,200 in Year 2 and $2,000 in year...

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Finance

You plan to deposit $1,000 in Year 1, $1,200 in Year 2 and$2,000 in year 4 in your savings account. You think that you canearn 6% per year. How much will you have in your account in Year6?
Yr0    Yr1    Yr2     Yr3    Yr4     Yr 5   Yr 6
        $1,000$1,200           $2,000             ?
Bank X promises to pay you $5,200 per year for 8 years, whereasBank Y offers to pay you $7,300 per year for 5 years.
Which of these cash flow streams has the higher present value(PV) if the discount rate is 5 percent?
(Hint: compare the PVs of annuity X($5,200 per year for 8 years) with annuity B ($7,300 per year for 5years)
Which one should you choose between Bank X and Bank Y?
Today, Dinero Bank offers you a $60,000, five-year term loan at7.5 percent annual interest (APR). What will your annual loanpayment be? (Hint: Find PMT)
You buy an annuity that will pay you $24,000 a year for 25years. The payments are paid on the first day of eachyear. What is the value of this annuity today if the discountrate is 8.5 percent? (Hint: annuity due)
The Maybe Pay Life Insurance Co. is trying to sell you aninvestment policy that will pay you and your heirs $30,000 per yearforever. If the required return on this investment is 4.3percent, how much will you pay for the policy? (Hint: Find PV ofperpetuity)
Find the EAR in each of the following cases:
APR 9% with quarterly compounding
APR 18% with monthly compounding
APR 14% with semi-annual compounding
Find the APR, or stated rate, in each of the following cases:
EAR 11.5%, semi-annual compounding
EAR 12% with quarterly compounding
Chapter 7
Consider a 3-year bond with a face value of $1,000 that has acoupon rate of 7%, with semi-annual payments.
What is the dollar amount of each coupon from this bond?
How many times of coupon payments will be made to thematurity?
Assume that a bond will make coupon payments every six monthsas shown on the following timeline:
               6 months   1 year      18months      2years
                 $20            $20              $20               $20 +$1000
What is the coupon rate (in percent)?
What is the face value?
What is the bond price of $1,000 bond with 6% coupon rate,annual coupons, and 2 years to maturity if the YTM is 8%?
What is the bond price of $1,000 bond with 6% coupon rate,semi-annual coupons, and 2 years to maturity if the YTM is 8%?
Suppose a 10-year, $1000 bond with an 8% coupon rate and annualcoupons is sold for $1034.74.
What is the bond’s YTM?
Is the YTM higher or lower than the coupon rate?

Answer & Explanation Solved by verified expert

3.9 Ratings (565 Votes)

Question 1 1000 in Year 1 1200 in Year 2 and 2000 in year 4 at 6 per annum FV PV1rT So at year 6 total 10001065 12001044 20001062 510040 Question 2 a Bank X See Answer

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You plan to deposit $1,000 in Year 1, $1,200 in Year 2 and$2,000 in year 4 in your savings account. You think that you canearn 6% per year. How much will you have in your account in Year6?Yr0 Yr1 Yr2 Yr3 Yr4 Yr 5 Yr 6 $1,000$1,200 $2,000 ?Bank X promises to pay you $5,200 per year for 8 years, whereasBank Y offers to pay you $7,300 per year for 5 years.Which of these cash flow streams has the higher present value(PV) if the discount rate is 5 percent?(Hint: compare the PVs of annuity X($5,200 per year for 8 years) with annuity B ($7,300 per year for 5years)Which one should you choose between Bank X and Bank Y?Today, Dinero Bank offers you a $60,000, five-year term loan at7.5 percent annual interest (APR). What will your annual loanpayment be? (Hint: Find PMT)You buy an annuity that will pay you $24,000 a year for 25years. The payments are paid on the first day of eachyear. What is the value of this annuity today if the discountrate is 8.5 percent? (Hint: annuity due)The Maybe Pay Life Insurance Co. is trying to sell you aninvestment policy that will pay you and your heirs $30,000 per yearforever. If the required return on this investment is 4.3percent, how much will you pay for the policy? (Hint: Find PV ofperpetuity)Find the EAR in each of the following cases:APR 9% with quarterly compoundingAPR 18% with monthly compoundingAPR 14% with semi-annual compoundingFind the APR, or stated rate, in each of the following cases:EAR 11.5%, semi-annual compoundingEAR 12% with quarterly compoundingChapter 7Consider a 3-year bond with a face value of $1,000 that has acoupon rate of 7%, with semi-annual payments.What is the dollar amount of each coupon from this bond?How many times of coupon payments will be made to thematurity?Assume that a bond will make coupon payments every six monthsas shown on the following timeline: 6 months 1 year 18months 2years $20 $20 $20 $20 +$1000 What is the coupon rate (in percent)?What is the face value?What is the bond price of $1,000 bond with 6% coupon rate,annual coupons, and 2 years to maturity if the YTM is 8%?What is the bond price of $1,000 bond with 6% coupon rate,semi-annual coupons, and 2 years to maturity if the YTM is 8%?Suppose a 10-year, $1000 bond with an 8% coupon rate and annualcoupons is sold for $1034.74.What is the bond’s YTM?Is the YTM higher or lower than the coupon rate?