Question

QUESTION 29 What is the interest rate of a single S20,000 cash flow in 3 years if the present value is $15,443.60? 1.8% 2.9% 3.10% QUESTION 30 Jay has made a deal with his daughter to start a car fund for when she graduates college in 6 years. He has found an investment that will yield an interest rate of 8% per year. If he wants to have $25,000 to spend on the car for his daughter, how much must he initially invest? 1. $13,772.55 2. $14,038.95 3. $15,754.28 4. $16,113.45

Answer 1

29.

Answer: option 2

PV = 15,443.60

FV = 20,000

Number of year = n = 3

Rate of interest = r =?

FV = PV (1 + r) ^ n

20,000 = 15443.60 (1 + r) ^ 3

20,000 / 15,443.60 = (1 + r) ^ 3

1.295 = (1 + r) ^ 3

1.295 ^ (1/3) = (1 + r) ^ (3/3)

1.295 ^ 0.333333 = 1 + r

1.08999 = 1 + r

1.08999 – 1 = r

0.08999 = r

It is now multiplied by 100 and rounded. (0.08999 × 100 =) 9%

30.

Answer: option 3

PV =?

FV = 25,000

Number of year = n = 6

Rate of interest = r = 0.08

FV = PV (1 + r) ^ n

25,000 = PV (1 + 0.08) ^ 6

25,000 = PV × 1.08 ^ 6

25,000 = PV × 1.58687

25,000 / 1.58687 = PV

PV = 15,754.28   

31.

Answer: option 1

If stated rate (or coupon rate) is less than the yield rate (or internal rate) the bond will be issued at discount. The issuance less than the par is discount.

32.

Answer: option 2

The initial amount is present value. It represents the amount borrowed.