In: Finance
Please show all your work in Excel, please send me the spreadsheet / workbook.
Coupon 8%
Maturity date 2038
Interest paid semiannually
Par Value $1000
Market interest rate 10%
Coupon 9%
Maturity date 2028
Interest paid semiannually
Par Value $1000
Market interest rate 8%
Coupon 9%
Maturity date 2027
Interest paid semiannually
Par Value $1000
Market price $955.00
Page Two
State of nature Probability Return
Boom 25% 20%
Average 60% 8%
Recession 15% 0%
Investment # of shares Price per share Expected return
A. 2000 $20 10%
B. 3000 $10 15%
C. 1000 $15 8%
What is your monthly payment?
What is the principle and interest on the first payment?
What is the principle and interest on the twelfth payment?
How much interest will you pay over the 20 years?
Page Three
(Please use age 30.)
Your plan is to go live in the tropics, on the beach, and live on coconuts and fishing. Also, you need to conclude your retirement savings at age 55 because all your spare money then will be going to your children’s education.
The question is how much money you will need to save each month between now and 55 so that you can quit contributing. The expected return on your investments over the whole period is 10% per year. Please ignore inflation.
All 3 bonds pay interest semi-annually. so maturity and market interest rate will also be semi-annual for required calculations.
1. the market value of the bond is $834.53.
Semi-annual maturity | 36 |
Semi-annual interest | $40.00 |
Par value | $1,000 |
Semi-annual market interest rate | 5.00% |
Market value of bond | $834.53 |
Semi-annual interest and par value are entered as negative values in the formula because otherwise formula will give market value of bond as negative value. bond is purchased in 2020 and will mature in 2038. hence maturity is 18 years.
Calculation
2. the market value of the bond is $1,058.26.
Semi-annual maturity | 16 |
Semi-annual interest | $45.00 |
Par value | $1,000 |
Semi-annual market interest rate | 4.00% |
Market value of bond | $1,058.26 |
.Calculation
3. the yield to maturity of the bond is 9.91%.
Market price in the formula is entered as negative value as it's a cash outflow.
Yield to maturity calculated by formula is semi-annual. it needs to be multiplied by 2 to make it annual.
Semi-annual maturity | 14 |
Semi-annual interest | $45.00 |
Par value | $1,000 |
Market price | $955 |
Semi-annual Yield to maturity | 4.95% |
Yield to maturity of the bond | 9.91% |
Calculation
4. current yield of bond in question 3 = annual interest payment/market price of the bond
current yield of bond in question 3 = ($1,000*9%)/$955 = $90/$955 = 0.0942 or 9.42%