Question

In: Finance

You have just purchased a four-month, $600,000 negotiable CD, which will pay a 7.5 percent annual...

You have just purchased a four-month, $600,000 negotiable CD, which will pay a 7.5 percent annual interest rate.

a. If the market rate on the CD rises to 8 percent, what is its current market value?
b. If the market rate on the CD falls to 7.25 percent, what is its current market value?

Solutions

Expert Solution

The payout of the four-month $600000 negotiable CD at 7.5% annual interest rate is calculated as:
=$600000*(1+7.5%*4/12)
Here 4 refers to the time period of the CD, that is 4 months and 12 refers to the total months in the year.
Payout=$600000*(1+7.5%*4/12)
=$600000*(1.025)
=$615000

Part a:
Here, we need to calculate the amount that pays $615000 (in 4 months time) when invested at 8%.
So, amount*(1+8%*4/12)=$615000
Here, 4 refers to the time period in months and 12 refers to the total months in the year.
=>Amount*(1+8%*4/12)=$615000
=>Amount*(1.026666667)=$615000
=>Amount=$615000/(1.026666667)=$599025.9738

So, current value=$599025.9738

Part b:
Here, we need to calculate the amount that pays $615000 (in 4 months time) when invested at 7.25%.
So, amount*(1+7.25%*4/12)=$615000
Here, 4 refers to the time period in months and 12 refers to the total months in the year.
=>Amount*(1+7.25%*4/12)=$615000
=>Amount*(1.024166667)=$615000
=>Amount=$615000/(1.024166667)=$600488.2016

So, current value=$600488.2016


Related Solutions

You have just purchased a three-month, $700,000 negotiable CD, which will pay a 6.5 percent annual...
You have just purchased a three-month, $700,000 negotiable CD, which will pay a 6.5 percent annual interest rate. a. If the market rate on the CD rises to 7 percent, what is its current market value? b. If the market rate on the CD falls to 6.25 percent, what is its current market value? (For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
A bank has issued a six-month, $1.0 million negotiable CD with a0.53 percent quoted annual...
A bank has issued a six-month, $1.0 million negotiable CD with a 0.53 percent quoted annual interest rate (iCD, sp). a. Calculate the bond equivalent yield and the EAR on the CD. b. How much will the negotiable CD holder receive at maturity? c. Immediately after the CD is issued, the secondary market price on the $1 million CD falls to $998,900. Calculate the new secondary market quoted yield, the bond equivalent yield, and the EAR on the $1.0 million...
A bank has issued a six-month, $2.6 million negotiable CD with a 0.46 percent quoted annual...
A bank has issued a six-month, $2.6 million negotiable CD with a 0.46 percent quoted annual interest rate (iCD, sp). a. Calculate the bond equivalent yield and the EAR on the CD. b. How much will the negotiable CD holder receive at maturity? c. Immediately after the CD is issued, the secondary market price on the $3 million CD falls to $2,598,600. Calculate the new secondary market quoted yield, the bond equivalent yield, and the EAR on the $2.6 million...
A bank has issued a six-month, $2.0 million negotiable CD with a 0.50 percent quoted annual...
A bank has issued a six-month, $2.0 million negotiable CD with a 0.50 percent quoted annual interest rate (iCD, sp). a. Calculate the bond equivalent yield and the EAR on the CD. b. How much will the negotiable CD holder receive at maturity? c. Immediately after the CD is issued, the secondary market price on the $2 million CD falls to $1,998,500. Calculate the new secondary market quoted yield, the bond equivalent yield, and the EAR on the $2.0 million...
A bank has issued a six-month, $2.9 million negotiable CD with a 0.45 percent quoted annual...
A bank has issued a six-month, $2.9 million negotiable CD with a 0.45 percent quoted annual interest rate (iCD, sp). a. Calculate the bond equivalent yield and the EAR on the CD. b. How much will the negotiable CD holder receive at maturity? c. Immediately after the CD is issued, the secondary market price on the $3 million CD falls to $2,899,000. Calculate the new secondary market quoted yield, the bond equivalent yield, and the EAR on the $2.9 million...
You have just deposited $8,500 into an account that promises to pay you an annual interest...
You have just deposited $8,500 into an account that promises to pay you an annual interest rate of 6 percent each year for the next 6 years. You will leave the money invested in the account and 10 years from today, you need to have $19,320 in the account. What annual interest rate must you earn over the last 4 years to accomplish this goal? Multiple Choice 14.07% 11.37% 10.01% 12.51% 11.55%
You have just deposited $13,000 into an account that promises to pay you an annual interest...
You have just deposited $13,000 into an account that promises to pay you an annual interest rate of 6.9 percent each year for the next 5 years. You will leave the money invested in the account and 15 years from today, you need to have $43,590 in the account. What annual interest rate must you earn over the last 10 years to accomplish this goal?
You’ve just won the lottery which promises to pay you $5,000 per month for the next...
You’ve just won the lottery which promises to pay you $5,000 per month for the next 30 years, starting in one month. The lottery company is require to buy US Treasury securities to guarantee that it can meet its obligation to you. If Treasury securities earned 5% APR compounded monthly, how much would the lottery company have to invest today to cover its obligation?
Question 23 You own two bonds. Both bonds pay annual interest, have 6 percent annual coupons,...
Question 23 You own two bonds. Both bonds pay annual interest, have 6 percent annual coupons, $1,000 face values, and currently have 6 percent yields to maturity. Bond A has 12 years to maturity and Bond B has 4 years to maturity. If the market rate of interest rises unexpectedly to 7 percent, Bond _____ will be the most volatile with a price decrease of _____ percent.   Group of answer choices A; 7.94 B; 3.39 B; 4.51 A; 5.73 A;...
1. You have just won a Colorado Lottery prize that will pay annual payments $7,573 forever....
1. You have just won a Colorado Lottery prize that will pay annual payments $7,573 forever. You would rather have a lump sum today rather than the future payments. If you wanted o discount those payments by 11.0%, the value of that prize in todays dollars would be $__.__. 2. Suppose that you were to receive $105 at the end of year one, $230 at the end of year 2, and $352 at the end of year three. If the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT