Using a financial calculator, solve for the unknowns in each of the following si

Question

Using a financial calculator, solve for the unknowns in each of the following situations.

(a) On June 1, 2014, Linda Cuningham purchases lakefront property from her neighbor, Donald Fancher, and agrees to pay the purchase price in 11 payments of $13,600 each, the first payment to be payable June 1, 2015. (Assume that interest compounded at an annual rate of 6.86% is implicit in the payments.) What is the purchase price of the property? (Round answer to 2 decimal places, e.g. 25.25.)

(b) On January 1, 2014, Noonan Corporation purchased 190 of the $1,000 face value, 7% coupon, 10-year bonds of Lumley Inc. The bonds mature on January 1, 2022, and pay interest annually beginning January 1, 2015. Noonan purchased the bonds to yield 8.67%. How much did Noonan pay for the bonds? (Round answer to 2 decimal places, e.g. 25.25.)

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Nper = 11 (indicates the number of times the payment is made)

PMT= 13600 (indicates the amount of payment)

Rate = 6.86% (indicates the rate of interest)

FV = 0 (indicates the future value, not relevant for this question)

PV =? (indicates the purchase price of the property)

Purchase Price of the Property = PV(Rate,Nper,PMT,FV) = PV(6.86%,11,13600,0) = 102696.94

Answer is 102696.94.

Part B:

Nper = 8 (indicates the number of times the payment is made)

PMT= 190*1000*.07 = 13300 (indicates the amount of payment)

Rate = 8.67% (indicates the rate of interest)

FV = 190000 (indicates the future value, not relevant for this question)

PV =? (indicates the purchase price of the bonds)

Purchase Price of the Bonds = PV(Rate,Nper,PMT,FV) = PV(8.67%,8,13300,190000) = 172220.55

Answer is 172220.55

.

Thanks.

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