Question

In: Finance

Problem 2.1 Calculate the present value of $10,000 due in 7 months using 6% p.a. simple...

Problem 2.1 Calculate the present value of $10,000 due in 7 months using 6% p.a. simple interest.

                

Problem 2.2 A note with a maturity value of $100,000 was purchased 46 days before maturity for $99,218.63. Calculate the rate of simple interest p.a. used.

Problem 2.3 Calculate the present (discounted) value at 5% p.a. payable monthly of $1,000.

(a) due at the end 4 years,

(b) due at the end 6 years.

Problem 2.4 If j4 = 5:8% calculate

(a) j2,

(b) j12.

Problem 2.5 A person has debts of $1,000 due on 1 July 2013 and $2,000 due on 1 January 2015. He wishes to pay $500 on 1 January 2014 and $X on 1 January 2016. Calculate X if interest is at 7% p.a. convertible half-yearly.

Problem 2.6 How long will it take for $2,000 to accumulate to $3,000 at 6%p.a. compounded continuously?

Problem 2.7 Investor A contributes $2,000 annually into a fund, the first deposit being on his 26th birthday and the last on his 65th birthday. How much will be in the fund immediately after the final deposit? Interest is at j1 = 8%.

Problem 2.8 A company wishes to accumulate $100,000 by the end of 5 years. What level deposit should be made at the end of each quarter for 5 years if interest is at j4 = 8%?

Problem 2.9 $500 is deposited at the end of each half-year for 10 years. Calculate the amount at the end of 10 years if interest is at j2 = 5% for 3 years and j2 = 7% thereafter.

Problem 2.10 Instead of paying $100 at the beginning of each month for 1 year, a person wants to make a single payment at the beginning of the year. Using j12 = 6% how much should be paid at the beginning of the year?

Problem 2.11 A bond with face value of $100 and interest at j2 = 7% is to be redeemed at par in 6 years.

(a) What is the size of the half-yearly interest payments?

(b) What is the size of the redemption payment?

(c) Draw a timeline showing the price paid (P), the interest payments and the redemption

payment.

(d) From your timeline, write down an equation of value, and hence calculate the price if

the yield to maturity is j2 = 8%.

Solutions

Expert Solution

Problem 2.1 Calculate the present value of $10,000 due in 7 months using 6% p.a. simple interest.
PV = FV/(1+Rate x Time)
PV = $10,000/(1+ 6%/12 x 7) $9,661.84
Problem 2.2 A note with a maturity value of $100,000 was purchased 46 days before maturity for $99,218.63. Calculate the rate of simple interest p.a. used
FV $100,000.00
PV $99,218.63
Period = 46 days/ 365 days 0.126 years
Rate
Interest rate = (FV/PV - 1) /t
Interest rate = (($100,000/$99,218.63)-1)/0.126 6.25%
Problem 2.3 Calculate the present (discounted) value at 5% p.a. payable monthly of $1,000.
(a) due at the end 4 years,
(b) due at the end 6 years.
PMT $1,000.00
Rate = 5%/12 0.42%
period = 4 x 12 48 months
Present Value = PV(0.42%,48,-$1000) $43,422.96 (a)
PMT $1,000.00
Rate = 5%/12 0.42%
period = 6 x 12 72 months
Present Value = PV(0.42%,48,-$1000) $62,092.78 (b)

Related Solutions

Find the present value of $10,000 due at the end of 7 years if: (a) The...
Find the present value of $10,000 due at the end of 7 years if: (a) The nominal annual interest rate is 6% compounded semi annually. (b) The nominal annual interest rate is 4% compounded monthly.
At an interest rate of 7%, what must be the present value of $10,000 due in...
At an interest rate of 7%, what must be the present value of $10,000 due in 8 months?
6.When comparing the future value of two investments: one that earns 6% p.a. simple interest and...
6.When comparing the future value of two investments: one that earns 6% p.a. simple interest and the other that earns 6% p.a interest compounding annually, the difference can best be described as: Select one: A. the time value of money B. a pricing convention in money markets C. compound interest D. interest on interest 7.A loan for $5,000 is to be repaid by payments of $2,000 after 1 year and $X after 2 years. Interest is at 9%p.a compounding monthly....
A 5% Treasury note matures in 12 months and has $10,000 face value. If the 6‐months...
A 5% Treasury note matures in 12 months and has $10,000 face value. If the 6‐months and 12‐months zero‐ coupon rates are 3% and 4% respectively, what is the YTM on the Treasury note? Specify your answer as a percentage with 4 digits after the decimal point.
Calculate the present value of each scenario using a 6% discount rate. Which scenario
  S12A-13 Determining present value Your grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios (you get to choose): 1. $8,750 per year at the end of each of the next six years 2. $49,650 (lump sum) now 3. $100,450 (lump sum) six years from now C H A P T E R 1 2 Requirements 1. Calculate the present value of each scenario using a...
Find the periodic payment for the following simple annuity due. Future Value $21,200 Present Value _________?...
Find the periodic payment for the following simple annuity due. Future Value $21,200 Present Value _________? Payment Period 1 month Term of Annuity 10 years Interest Rate 11% Conversion Period monthly The periodic payment is ​$______ . ​(Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as​ needed.)
Problem 4-17 Present Value for Various Compounding Periods Find the present value of $600 due in...
Problem 4-17 Present Value for Various Compounding Periods Find the present value of $600 due in the future under each of the following conditions. Do not round intermediate calculations. Round your answers to the nearest cent. 10% nominal rate, semiannual compounding, discounted back 5 years $    10% nominal rate, quarterly compounding, discounted back 5 years $    10% nominal rate, monthly compounding, discounted back 1 year $  
Problem 4-17 Present Value for Various Compounding Periods Find the present value of $475 due in...
Problem 4-17 Present Value for Various Compounding Periods Find the present value of $475 due in the future under each of the following conditions. Do not round intermediate calculations. Round your answers to the nearest cent. 4% nominal rate, semiannual compounding, discounted back 5 years $    4% nominal rate, quarterly compounding, discounted back 5 years $    4% nominal rate, monthly compounding, discounted back 1 year $  
1. When comparing the future value of two investments: one that earns 6% p.a. simple interest...
1. When comparing the future value of two investments: one that earns 6% p.a. simple interest and the other that earns 6% p.a interest compounding annually, the difference can best be described as: Select one: A. the time value of money B. a pricing convention in money markets C. compound interest D. interest on interest 2.The concept that a unit of currency today is not worth the same as a unit of currency in another time period is best described...
Net present value Using a cost of capital of 11​%, calculate the net present value for...
Net present value Using a cost of capital of 11​%, calculate the net present value for the project shown in the following table and indicate whether it is​ acceptable, Initial investment ​(CF 0CF0​) negative 1 comma 143 comma 000−1,143,000 Year ​(t​) Cash inflows ​(CF Subscript tCFt​) 1 $81,000 2 $138,000 3 $193,000 4 $258,000 5 $311,000 6 $377,000 7 $270,000 8 $98,000 9 $45,000 10 $29,000 The net present value​ (NPV) of the project is _____​$ ​(Round to the nearest​...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT