1. For each of the following annuities calculate the annual cash flow
Present Value |
Years |
Interest Rate |
$24,500 | 6 | 11% |
$19,700 | 8 | 7% |
2. You deposit $5,000 at the end of each year for 20 years into an accouninterest, how much money will you have in the account in 20 years?
3. Lycan Inc. has 7% coupon bonds on the market that have 9 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the YTM on these bonds is 8.4%, what is the current bond price?
4. The Timberlake Co. has 7% coupon bonds in the market with 9 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the bonds currently sell for $961.50, what is the YTM?
5. Volbeat Co. has bonds on the market with 10.5 years to maturity, a YTM of 6.2%, a par value of $1,000, and a current price of $945. The bonds make semiannual payments.
What must the coupon rate be on the bonds?
Present value = 24500
Years (n) = 6
Interest rate (i)= 11% or 0.11
Equal annuity payments formula
= P* i *((1+i)^n)/(((1+i)^n)-1)
=24500*0.11*((1+0.11)^6)/(((1+0.11)^6)-1)
=5791.225808
So, equal annual cash flow is $5,791.23
(2)
Present value = 19700
Years (n) = 8
Interest rate (i)= 7% or 0.07
Equal annuity payments formula = P* i
*((1+i)^n)/(((1+i)^n)-1)
19700*0.07*((1+0.07)^8)/(((1+0.07)^8)-1)
3299.114921
So, equal annual cash flow is $3,299.11
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