Question

In: Accounting

The interest rates given in the assignment are annual percentage rates. 1. Assume that starting on...

The interest rates given in the assignment are annual percentage rates.

1. Assume that starting on December 31, 2020, you deposit $2,800 in the bank and that you continue to deposit $2,800 every December 31st through December 31, 2050 (a total of 30 deposits). You are able to earn 4% interest per year. How much money will you have saved by December 31, 2050 after making the final deposit? (Hint: I recommend that you use the FV formula in Excel to solve this payment in arrears [sometimes called an ordinary annuity] problem. You can access the Help menu to learn how to use the FV function.)

2. Use the information from Question 1 except assume that you are able to earn 6% interest per year. How much money will you have saved by December 31, 2050?

3. Use the information from Question 1 except assume that you save every year through

December 31, 2060. How much money will you have saved by December 31, 2060?

Solutions

Expert Solution

Ans:

Please find attached answer sheets. 1 sheet contains answer and other contains formula. Assuming deposit started on 31st Dec 2020, beginning of the year.

For any query please ask in comment box. Please don't forget to provide your valuable feedback. Thanks!

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

1. Assume that annual interest rates in the U.S. are 3 percent, while interest rates in...
1. Assume that annual interest rates in the U.S. are 3 percent, while interest rates in Japan are 6 percent. Assume that the current spot rate is ¥100/$. Suppose the U.S. risk-free interest rate has been steadily rising from 2% 3 years ago to 5% currently. The Euro interest rate has remained constant over the same time period at 6%, what should be happening to the Euro’s forward premium/discount? What is the impact of an appreciation of the USD on...
Assume that annual interest rates in the U.S. are 4.5 percent, while interest rates in U.K....
Assume that annual interest rates in the U.S. are 4.5 percent, while interest rates in U.K.      are 3.2 percent. According to IRP (using the exact formula), what should the forward rate premium or discount of the BP (British Pound) be? If the BP’s spot rate is $1.3067, what should the one-year forward rate of the British pound be? (3 points)
32. Mortgage rates: Following are interest rates (annual percentage rates) for a 30-year fixed rate mortgage...
32. Mortgage rates: Following are interest rates (annual percentage rates) for a 30-year fixed rate mortgage from a sample of lenders in Macon, Georgia on a recent day. It is reasonable to assume that the population is approximately normal. 4.750 4.375 4.176 4.679 4.426 4.227 4.125 4.250 3.950 4.191 4.299 4.415 a. Construct a 99% confidence interval for the mean rate. b. One week earlier, the mean rate was 4.050%. A mortgage broker claims that the mean rate is now...
Question #3: Interest rates are quoted either as Annual Percentage Rate (APR) or Effective Annual Rate...
Question #3: Interest rates are quoted either as Annual Percentage Rate (APR) or Effective Annual Rate (EAR) Required: What is the difference between an Annual Percentage Rate and an Effective Annual Rate?
Assume that annual interest rates are 4 percent in the United States and 3 percent in...
Assume that annual interest rates are 4 percent in the United States and 3 percent in Turkey. An FI can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The spot rate is $0.6652/Turkish lira (TL). a. If the forward rate is $0.6735/TL, how could the bank arbitrage using a sum of $9 million? What is the spread earned? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))   Spread earned % b....
Assume that annual interest rates are 8 percent in the United States and 7 percent in...
Assume that annual interest rates are 8 percent in the United States and 7 percent in Turkey. An FI can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The spot rate is $0.6571/Turkish lira (TL). a. If the forward rate is $0.6735/TL, how could the bank arbitrage using a sum of $8 million? What is the spread earned? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616)) b. At what forward...
Assume that annual interest rates are 4 percent in the United States and 3 percent in...
Assume that annual interest rates are 4 percent in the United States and 3 percent in Turkey. An FI can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The spot rate is $0.6584/Turkish lira (TL). a. If the forward rate is $0.6735/TL, how could the bank arbitrage using a sum of $7 million? What is the spread earned? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616)) b. At what forward...
Assume that the yield curve is as given below. Assume semi-annual compounding. Compute the par rates...
Assume that the yield curve is as given below. Assume semi-annual compounding. Compute the par rates out to two years at semiannual intervals. T (in years) r(T) 0.50 0.047502 1.00 0.050016 1.50 0.052508 2.00 0.054751 Hint: Compute discount factors from the yield curve using the formula from class. Then, use the formula for par yields C(T) from part 1) above. Note! The formula gives you a decimal number, i.e. a number like 0.031875. This number means 3.1875%. 1) Calculate the...
6. Assume that annual interest rates are 5 percent in the United States and 4 percent...
6. Assume that annual interest rates are 5 percent in the United States and 4 percent in Turkey. An FI can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The spot rate is $0.6624/Turkish lira (TL). a. If the forward rate is $0.6735/TL, how could the bank arbitrage by using a sum of $5 million? What is the spread earned? b. At what forward rate is this arbitrage eliminated?
1.Given a term structure of interest rates, derive the spot rates projected for years 1, 2,...
1.Given a term structure of interest rates, derive the spot rates projected for years 1, 2, ….n, T T period Bond Yield to mat. (zero coupon) Implied spot rates 1 6.0 2 6.7 3 7.0 4 7.5 5 7.6 Compute your spot rates. Explain why it is important that we use zero coupon bonds. 2.Given an n year zero coupon bond, compute the modified duration. 3. Introduction to risk free pricing. Compute the risk free pricing of a call option...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT