Homework Answers
PICTURE 1
PRESENT VALUE IS =1300 X .7107= 923.91
PICTURE 2
YTM = PRESENT VALUE= FUTURE VALUE /( 1+i )5= 1000 = 3000 / (1 + i)5 = (1 + i)5=3 = 1.2457-1 = 24.57%
PICTURE 3
$1000 received today is worth $1000 today
Value of second $1000 payment is worth 1000 x .9070 = 907 today
present value of 20000 earnings is 1000 x PVAF for 20 years @ 5% = 1000 x 12.4622 = 12462.20
PICTURE 4
price of perpetual bond = 200 / 10% = 2000
Current yield = coupon / price = 200 / 2000 = 10%
In one year, the price of the bond will be 200 / 12% = 1666.67 The capital loss = 1666.67 - 2000 = -333.33. The coupon payment is 200. The total return is the sum of the coupon payment and capital gain, thus the total rate of return is:
total rate of return = (-333 + 200 ) / 2000 = -6.65%
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