Question

7. Your grandfather left an inheritance for you of $80,000. However you can only drawdown on the investment as follows:

Years 1 – 4 $10,000 each year and

Year 5 $40,000

Interest on the fund is 7.5%. What is the present worth of this inheritance?

10. The face value for Karen’s Limited bonds is $100,000 and has a 2 percent annual coupon. The 2 percent annual coupon bonds matures in 2022, and it is now 2012. Interest on these bonds is paid annually on December 31 of each year, and new annual coupon bonds with similar risk and maturity are currently yielding 12 percent. How much should Karen sell her bonds today?

12. What is the semi-annual coupon bond’s nominal yield to maturity (YTM), if the years to maturity is 15 years, and sells for 119% with coupons rate of 10%? Assume the par value of the bond is $1,000.

15. Which of the following statements is most correct with regards to a 10 year bond with a 9% annual coupon rate and a YTM of 8%?

a) The bond is selling at a discount.

b) The bond’s current yield is greater than 9 percent.

c) If the yield to maturity remains constant, the bond’s price one year from now will be lower than its current price.

Answer 1

I can only answer 1 question at a time, so I am answering only question 7.

present worth of this inheritance =

present worth of this inheritance = $61,355.61

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