Question

A $10,000 mortgage bond with a bond Interest rate of 18% per year, payable quarterly, was purchased for SABO. The bond was kept until it was due total of 5 years. What is correct equation (PWPWd-) to calculate the rate of return "1" made by the purchaser of the bond? -10,000+ 900(P/A, 1.20) + 10,000/P/F, ".201-0 -8,800 900(P/A 1,10) +10,000/P/F, 1", 10)-0 -8.800 +1800(P/A, 14.5) +10,000{P/F, 1.51-0 -5,800 +450{P/A. 1.20) +10.000{P/F, 11.201-0 ROR Analysis _Single Project Select the "best answer to the following multiple choice question. Question 14 (6.5 points) What ROR will an entrepreneur make over a year project period if he invested $85,000 (time to produce portable X-volt air compressors? His estimated costs are $20,000 per year with estimated revenue of $40,000 per year (Hint: You can solve with IRR function in Excel) ROR- 16.7% ROR-88.2% ROR-20.0% ROR-100.0%

Answer 1

1. Coupon payment per quarter = 18% / 4 * 10000 = 450

Total quarters = 5 * 4 = 20

Let the yeild to maturity = i%. then

-8800 + 450 * (P/A, i%,20) + 10000 * (P/F, i%,20) = 0

Last option is correct answer

2

Net revenue per year = 40000 - 20000 = 20000

Using IRR function in excel

Year	Cash flow
0	-85,000.00
1	20,000.00
2	20,000.00
3	20,000.00
4	20,000.00
5	20,000.00
6	20,000.00
7	20,000.00
8	20,000.00
IRR	16.7%

First option is corrrect answer

Showing formula in excel

Year	Cash flow
0	-85000
1	20000
2	20000
3	20000
4	20000
5	20000
6	20000
7	20000
8	20000
IRR	=IRR(N8:N16)