Homework Answers
Question 1:
r = 8%/2 = 4% (semi-annually), n = 6 * 2 = 12 semi-annual periods
FV = 15,000 * (1 + 4%)12
FV = 15000 * 1.601032
FV = 24,015.48
Question 2:
r = 8%/4 = 2% (quarterly), n = 6 * 4 = 24 semi-annual periods
FV = 15,000 * (1 + 2%)24
FV = 15000 * 1.608437
FV = 24,126.56
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You are graduating in two years. You want to invest your current
savings of $6,100 in bonds and use the proceeds to purchase a new
car when you graduate and start to work. You can invest the money
in either bond A, a two-year bond with a 3.23 percent annual
interest rate, or bond B, an inflation-indexed two-year bond paying
1.03 percent real interest above the inflation rate (assume this
bond makes annual interest payments). The inflation rate...
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