Answer the following questions: Show your work. 1) Your employer has agreed to p

Question

Answer the following questions: Show your work.

1) Your employer has agreed to place year-end deposits of $1,000, $2,000 and $3,000 into your retirement
account. The $1,000 deposit will be one year from today, the $2,000 deposit two years from today, and the
$3,000 deposit three years from today. If your account earns 7% per year, how much money will you have in
the account at the end of year three when the last deposit is made?

2) The furniture store offers you no-money-down on a new set of living room furniture. Further, you may pay
for the furniture in three equal annual end-of-the-year payments of $1,100 each with the first payment to be
made one year from today. If the discount rate is 6%, what is the present value of the furniture payments?

3) Your department at work places $10,000 every year-end into an account earning 5%. The money is used
when the corporate office fails to fully finance your profitable projects. The money has not been touched since a
first deposit was made exactly six years ago. If the most recent deposit was made today, how much money is
currently in the account?

4) If you borrow $50,000 at an annual interest rate of 12% for ten years, what is the annual payment (prior to
maturity) on a fully amortized loan?

5) The Cougar Corporation has issued 20-year semi-annual coupon bonds with a face value of $1,000. If the
annual coupon rate is 10% and the current yield to maturity is 14%, what is the firm's current price per bond?

Explanation / Answer

1)   Final amount = 1000*1.07^2 + 2000*1.07^1 + 3000=$6284.90

2)
present value of the furniture payments = 1100/1.06 + 1100/1.06^2 + 1100/1.06^3=$2940.31

3)

money currently in the account= 10000*1.05^5 + 10000*1.05^4 + 10000*1.05^3 + 10000*1.05^2 + 10000*1.05^1 + 10000=$68019.13

4)

50000 = annual payment*(1-1/1.12^10)/12%

Annual payment =$8849.21

5)

Annual coupon = 10%*1000/2= 50

firm's current price per bond = 50*(1-1/1.07^40)/7% + 1000/1.07^40=     $733.37

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