Question

please help me with these practice problems

Answers to numerical questions can be rounded to the nearest whole dollar. Put interest rates in basis point format, 1. Present Value a. What is the PV of $20,000 received 8 years from now if the discount factor is 4.50%? (2) 2. Compounding a. If $40,000 is put in an account paying 3% interest annually. How much more interest will be earned in ten years if the interest is compounded daily versus annually? (2) 3. Discount Bond Consider a $3,000 6-yr discount bond and an interest rate of 3.25%. a. Calculate the price of this bond. (2) b. What is the YTM if this bond is purchased in the bond market for $2,600? (2) 4. Continuous Streams You win a lottery and the lottery commission will pay you $1 million a year for 10 years. They also offer you a choice to take $7.5 million as one lump sum payment. a What is the long-form expression for this problem if the discount factor is unknown? (Just give the 1st, 2nd, and terminal terms in the equation.) (3) b. Compute the discount factor the lottery commission used to get the $7.5 million lump-sum payment? (3) 5. Retirement Saving An employee builds up $750,000 over his 40-year working life in a personal account that he plans to use in retirement. a. Assuming an interest rate of 3.30% per year, how much can he take each month in retirement if he retires on his 63rd birthday and wants to be funded through age 87? (4) b. What amount of monthly saving would have been required to amass $750,000 in a personal account if the interest rate were 3.75%? (4)

Answer 1

1.

a.

Present value or PV

=FV/(1+r)^n

=20000/(1+4.50%)^8

=14063.70 (answer)

the above is answer..