Question

5. Tommy is going to receive a cash flow of 5100 monthly for 15 years. Timmy w poing to receive a cash flow of $100 monthly forever. If the discount is 125. how cho Jimmy's cash flow worth as of today? A) $1.294.36 B) $1.323.57 C) $1,545.4) D) $1,667.83 D 57.493 83 6. You have just obtained the loan in the mount of $10.000 You make monthly payment of 53226719 for 3 years. What is the quoted interest rate on the loan? A) 7.33% B) 8% C) 8.33% D) 10 E) 129 7. You currently have 55.000 in an investment which can 7 year. If you want this investment to be worth $1,000,000 at the time of your retirement 40 years from now, how much will you have to add each month to this investment A) $1499 B) $2490 C) $1499 D) $4499 E) 554991 8. You are considering an investment Contract that requires you to make payments of 5745.5960 quarterly. At the end of the contract, you will receive the cash flow of $10,000. The quoted interest rate is %. What must be the duration of this contract? A) 3 years B) 4 years C) 10 years D) 12 years E) 16 years 9. US government securities with maturity of greater than one year but within 10 years are: A) Treasury bills B) Treasury notes C) Treasury bonds D) Municipal bonds 10. Which one of the following is true? A) Price of a callable bond is greater than price of a non-callable bond. B) Municipal bonds are default risk-free. C) Yield on a convertible bond is lower than yield on a non-convertible bond D) U.S. government securities are exempt from federal income taxes.

Answer 1

Given Tommy to receive Cashflow Time Time in month Jimmy to Receive Cashflow Time 100 $ 15 years 180 years 100 $ Perpetuity 12% Discount Rate Discount Rate per month 1% Solution 5 Step 1: Present Value of Cashflow of Tommy PVAF 83.322 Present Value = Cashflow X 100 x 8332.17 where PVAF (Present value annuity factor) = (1+r)^n-1 rX(1+r)^n where r is discount rate and n is number of month Step 2: Present Value of Cashflow of Jimmy Present Value of perpetuity Perpetuity Interest rate 100 1% 10000.00 $ Hence, option D is correct as Jimmy's Cashflow worth is more by 10000 - 8332.17 = 1667.83$ *Note: We are allowed to answer only one question