Problem 4 Minji is trying to save money for her much will she have for a down p
ID: 2559610 • Letter: P
Question
Problem 4 Minji is trying to save money for her much will she have for a down p first house in 6 years. She is able to save $5,000 per year. How ayment in 6 years if she earns 8% per year? Alicia Company is about to issue $400,000 worth of 4 year bonds at 11% interest rate, paid SEM!ANNUALLY. If the discount (market) rate is 12%, how much can the Company expect to receive for its bonds? Present value of the interest payments Present value of the principal: Total (selling price of bond): Page Vsn B 11.20.17 202- Final Exam-F17Explanation / Answer
Answer 4.
Annual Saving = $5,000
Number of years of saving = 6 years
Annual interest rate = 8%
Accumulated Sum = $5,000*1.08^5 + $5,000*1.08^4 + $5,000*1.08^3 + $5,000*1.08^2 + $5,000*1.08 + $5,000
Accumulated Sum = $5,000 * (1.08^6 - 1) / 0.08
Accumulated Sum = $5,000 * 7.33593
Accumulated Sum = $36,679.65
So, Minji can make a down payment of $36,679.65
Answer 5.
Face Value = $400,000
Annual Coupon Rate = 11%
Semi-annual Coupon rate = 5.5%
Semi-annual Coupon = 5.5%*$400,000 = $22,000
Annual Interest Rate = 12%
Semi-annual Interest Rate = 6%
Semi-annual period to maturity = 8
Present Value of Interest Payments = $22,000 * PVA of $1 (6%, 8)
Present Value of Interest Payments = $22,000 * 6.2098
Present Value of Interest Payments = $136,615.60
Present Value of Principal = $400,000 * PV of $1 (6%, 8)
Present Value of Principal = $400,000 * 0.6274
Present Value of Principal = $250,960.00
Selling Price = Present Value of Principal + Present Value of Interest Payments
Selling Price = $250,960.00 + $136,615.60
Selling Price = $387,575.60
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