1.) In 1752, Britain consolidated all gov debt into a single issue called \"cons
ID: 2728266 • Letter: 1
Question
1.) In 1752, Britain consolidated all gov debt into a single issue called "consol" bonds. Consol bonds were perpetual and initially paid an annual coupon of 3.5%. Since issue, the coupon rate has been changed from time to time. Assume that it is currently $44 per year in equivalent US dollars. What is the fair price for a consol bond (present value of the stream of coupoon payments) if the appropriate interest rate is 12%?
2.) You are considering the pruchase of a BMW. You will borrow the money from the BMW financial services. Terms are...
MSRP=$85,000
Term=72 months
APR= 7.5%
Down Payment = 0
Monthly Payments = $1,469.66
The amorized loan payments are a blend of interest and principal. What is the total amount of interest you would pay over the life of the loan? Assume that taxes are zero.
Explanation / Answer
$0.00
(a) calculation for the fair value for a consolidated bonds: since perpetual bonds have no maturity date, the payments will continue forever The price of perpetual bond is therefore the fixed interest rate or coupan amount, dividing by discount rate, with the discount rate representing the speed at which money loses value over time here coupan amount is $ 44 and discount rate is 12% therefore fair value = $ 44 / 0.12 I,e 367 (b) total interest paid is $ 20,815.49 Beginning Balance Interest Principal Ending Balance 1 $85,000.00 $531.25 $938.41 $84,061.59 2 $84,061.59 $525.38 $944.27 $83,117.32 3 $83,117.32 $519.48 $950.18 $82,167.14 4 $82,167.14 $513.54 $956.11 $81,211.02 5 $81,211.02 $507.57 $962.09 $80,248.93 6 $80,248.93 $501.56 $968.10 $79,280.83 7 $79,280.83 $495.51 $974.15 $78,306.68 8 $78,306.68 $489.42 $980.24 $77,326.43 9 $77,326.43 $483.29 $986.37 $76,340.06 10 $76,340.06 $477.13 $992.53 $75,347.53 11 $75,347.53 $470.92 $998.74 $74,348.79 12 $74,348.79 $464.68 $1,004.98 $73,343.81 Year #1 End 13 $73,343.81 $458.40 $1,011.26 $72,332.55 14 $72,332.55 $452.08 $1,017.58 $71,314.97 15 $71,314.97 $445.72 $1,023.94 $70,291.03 16 $70,291.03 $439.32 $1,030.34 $69,260.69 17 $69,260.69 $432.88 $1,036.78 $68,223.91 18 $68,223.91 $426.40 $1,043.26 $67,180.65 19 $67,180.65 $419.88 $1,049.78 $66,130.87 20 $66,130.87 $413.32 $1,056.34 $65,074.53 21 $65,074.53 $406.72 $1,062.94 $64,011.58 22 $64,011.58 $400.07 $1,069.59 $62,942.00 23 $62,942.00 $393.39 $1,076.27 $61,865.72 24 $61,865.72 $386.66 $1,083.00 $60,782.72 Year #2 End 25 $60,782.72 $379.89 $1,089.77 $59,692.96 26 $59,692.96 $373.08 $1,096.58 $58,596.38 27 $58,596.38 $366.23 $1,103.43 $57,492.95 28 $57,492.95 $359.33 $1,110.33 $56,382.62 29 $56,382.62 $352.39 $1,117.27 $55,265.35 30 $55,265.35 $345.41 $1,124.25 $54,141.10 31 $54,141.10 $338.38 $1,131.28 $53,009.82 32 $53,009.82 $331.31 $1,138.35 $51,871.47 33 $51,871.47 $324.20 $1,145.46 $50,726.01 34 $50,726.01 $317.04 $1,152.62 $49,573.39 35 $49,573.39 $309.83 $1,159.83 $48,413.56 36 $48,413.56 $302.58 $1,167.07 $47,246.49 Year #3 End 37 $47,246.49 $295.29 $1,174.37 $46,072.12 38 $46,072.12 $287.95 $1,181.71 $44,890.41 39 $44,890.41 $280.57 $1,189.09 $43,701.32 40 $43,701.32 $273.13 $1,196.53 $42,504.79 41 $42,504.79 $265.65 $1,204.00 $41,300.78 42 $41,300.78 $258.13 $1,211.53 $40,089.25 43 $40,089.25 $250.56 $1,219.10 $38,870.15 44 $38,870.15 $242.94 $1,226.72 $37,643.43 45 $37,643.43 $235.27 $1,234.39 $36,409.04 46 $36,409.04 $227.56 $1,242.10 $35,166.94 47 $35,166.94 $219.79 $1,249.87 $33,917.07 48 $33,917.07 $211.98 $1,257.68 $32,659.40 Year #4 End 49 $32,659.40 $204.12 $1,265.54 $31,393.86 50 $31,393.86 $196.21 $1,273.45 $30,120.41 51 $30,120.41 $188.25 $1,281.41 $28,839.00 52 $28,839.00 $180.24 $1,289.42 $27,549.59 53 $27,549.59 $172.18 $1,297.47 $26,252.11 54 $26,252.11 $164.08 $1,305.58 $24,946.53 55 $24,946.53 $155.92 $1,313.74 $23,632.79 56 $23,632.79 $147.70 $1,321.95 $22,310.83 57 $22,310.83 $139.44 $1,330.22 $20,980.61 58 $20,980.61 $131.13 $1,338.53 $19,642.08 59 $19,642.08 $122.76 $1,346.90 $18,295.19 60 $18,295.19 $114.34 $1,355.31 $16,939.87 Year #5 End 61 $16,939.87 $105.87 $1,363.79 $15,576.09 62 $15,576.09 $97.35 $1,372.31 $14,203.78 63 $14,203.78 $88.77 $1,380.89 $12,822.89 64 $12,822.89 $80.14 $1,389.52 $11,433.38 65 $11,433.38 $71.46 $1,398.20 $10,035.17 66 $10,035.17 $62.72 $1,406.94 $8,628.23 67 $8,628.23 $53.93 $1,415.73 $7,212.50 68 $7,212.50 $45.08 $1,424.58 $5,787.92 69 $5,787.92 $36.17 $1,433.49 $4,354.44 70 $4,354.44 $27.22 $1,442.44 $2,911.99 71 $2,911.99 $18.20 $1,451.46 $1460.53 72 $1,460.53 $9.13 $1,460.53$0.00
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