Question

Find the future value of investing $100,000 today at 5% compounded annually and compounded quarterly for 30 years. Find the present value of $100,000 due in 20 years at 5% rate. Find the present value of $75,000 per year for 20 years at 5% rate. Find the monthly mortgage payment for a 30-year loan with an amount of $500,000 at 4.75% for 30 years. An investment requires an initial capital outlay of $12,000. The investment is expected to generate future cash flows of $1,000 one year hence, $2000 two years hence, $3,000 three years hence, $4,000 four years hence, $5,000 five years hence. Assume a 10% cost of capital. Find the value of a corporate bond that pays 6% coupon rate, has $100 face value and 5 years to maturity. Market rate is 4%. Will you pay $100 for the bond? Explain.

Answer 1

(1)

(a) Initial Investment = $ 100000, Interest Rate = 5%, Compounding Frequency: Annual, Tenure = 30 years

Future Value = 100000 x (1.05)^(30) = $ 432194.24

(b)

Initial Investment = $ 100000, Interest Rate = 5%, Compounding Frequency: Quarterly, Tenure = 30 years or (30 x 4) = 120 quarters

Applicable Periodic Interest Rate = 5/4 = 1.25 %  

Future Value = 100000 x (1.0125)^(120) = $ 444021.32

NOTE: Please raise separate queries for solutions to the remaining unrelated questions as one query is restricted to the solution of only one complete question with up to four sub-parts.