You plan to take a vacation at the end of year 2. The vacation will cost $2000.
ID: 1169558 • Letter: Y
Question
You plan to take a vacation at the end of year 2. The vacation will cost $2000. If the bank pays 6% on savings, how much would you have to put in the bank today to fund your vacation?
$1780
$1437
$2000
$1837
$1946
If you deposit $500 in a savings account at an annual interest rate of 5%, how much will you have in the account at the end of five years?
$392
$625
$550
$638
If you deposit $10,000 in a savings account at an annual interest rate of 6%, how much will you have in the account at the end of three years?
$8,396
$10,600
$11,800
$11,910
At an interest rate of 6%, how much will need to be invested today to have $10,000 in 5 years?
$5,000
$13,382
$7,473
$10,000
Issuers of coupon bonds
make a single payment of principal when the bonds matures, but multiple payments of interest over the life of the bond.
make a single payment of interest and principal.
make multiple payments of principal, but a single payment of interest.
make a single payment of principal at the time the bond is issued and multiple payments of interest over the life of the bond.
You purchase a two-year $1000 face value bond at par. The bond has a 6% coupon rate.However, do to cashflow problems, the company misses the first coupon payment, but pays both coupons payments in year 2. What is your rate of return?
0.0583
0.0653
0.0300
0.0600
0.0428
Using the information, in the previous question, suppose the company pays all of the coupon payments on time. What is your rate of return?
0.1200
0.0600
0.0300
0.0500
0.0800
What is the price of a coupon bond that has annual coupon payments of $75, a par value of $1000, a yield to maturity of 5%, and a maturity of two years?
$1043.08
$1046.49
$1000.00
$1150.00
You purchase a two-year $1000 face value bond at par. The bond has a 6% coupon rate.However, do to cashflow problems, the company misses the first coupon payment, but pays both coupons payments in year 2. What is your rate of return?
0.0583
0.0653
0.0300
0.0600
0.0428
Someone offers you the following deal. They will pay you $5000 in two years if you agree to pay them $4500 today. If you accept the deal, what is your rate of return?
0.0731
0.0541
0.1111
0.0342
$1780
$1437
$2000
$1837
$1946
Explanation / Answer
As per the rule, I can answer first four questions only.
R= 6%
FV = 2000
N = 2 years
We can calculate current amount of savings using the following formula,
PV =FV/ (1+r)^n
PV= 2000/ (1+0.06)^2
PV = 2000/1.1236
PV = 1780
Hence correct option is A.
2. We have:
R= 5%
PV = 500
N = 5 years
We have following formula for FV:
FV = PV x (1+r)^n
FV= 500 x (1+0.05)^5
= 500 x 1.2763
=638
Hence correct option is D.
3. We have:
R= 6%
PV = 10,000
N = 3 years
We have following formula for FV:
FV = PV x (1+r)^n
FV= 10,000 x (1+0.06)^3
= 10,000 x 1.1910
=11910
Hence correct option is D.
4.We have:
R= 6%
FV = 10,000
N = 5 years
We can calculate current amount of deposit using the following formula,
PV =FV/ (1+r)^n
PV= 10,000/ (1+0.06)^5
PV = 10,000/1.3382
PV = 7473
Hence correct option is C.
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