Question

Assignment (Time Value of Money) 1. What is the selling price today of a bond with a face value of $100,000,4% coupon paid annually and maturity of 10 years if market interest rates are: b. 6% c. 2% 2. In exchange for a $20,000 payment today, a well-known company will allow you to choose one of the alternatives shown in the following table, your opportunity cost is 11% Alternative Single Amount $28,000 at the end of 3 years $54,000 at the end of 9 years $160,000 at the end of 20 years B C 3. You are to invest $15,000 now and to receive the following amounts in the next five years: year Cash Flow 3,000 5,000 4,000 3.000 2,000 If the required rate of return is 5%, should you make the investment? 4. If you deposit $5,000 annually for the next 10 years, how much will you have if annual interest on deposits is 3% 5. If you want to have $100,000 in your saving account after 20 years, how much should you deposit annually if the interest rates -5% 6. If the annual interest rate is 6%, what is the future value of $200 deposited in a saving account on a monthly basis after 10 years.

Answer 1

1

a

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =10

Bond Price =∑ [(4*100000/100)/(1 + 4/100)^k]     +   100000/(1 + 4/100)^10

k=1

Bond Price = 100000

b

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =10

Bond Price =∑ [(4*100000/100)/(1 + 6/100)^k]     +   100000/(1 + 6/100)^10

k=1

Bond Price = 85279.83

c

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =10

Bond Price =∑ [(2*100000/100)/(1 + 6/100)^k]     +   100000/(1 + 6/100)^10

k=1

Bond Price = 70559.65