*SHOW ALL WORK USING AN EXCEL SPREADSHEET* Assume the intrest rate is 8% o. In 2
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*SHOW ALL WORK USING AN EXCEL SPREADSHEET*
Assume the intrest rate is 8%
o. In 2013, Picasso's painting Le Rêve was sold to hedge-fund manager Steven A. Cohen for $155 million. In 1941, 72 years earlier, the same painting sold for $7,000. Calculate the rate of return on this investment. What does this suggest about the merits of fine art as an investment: Bank Loan, Bond, and Stock Problems p. How much would you pay for a 10-year bond with a par value of $1,000 and a 7 percent coupon rate? Assume interest is paid annually q. How much would you pay for a share of preferred stock paying a S5-per-share annual dividend forever? r. A company is planning to set aside money to repay $150 million in bonds that will be coming due in eight years. How much money would the company need to set aside at the end of each year for the next eight years to repay the bonds when they come due? How would your answer change if the money were deposited at the be- ginning of each year? s. An individual wants to borrow $120,000 from a bank and repay it in six equal annual end-of-year payments, including interest. What should the payments be for the bank to earn 8 percent on the loan? Ignore taxes and default risk.Explanation / Answer
A / 1 B C D 2 o) Rate of return for the investment 3 Painting bought for 7000 4 Painting bought before 72 Years 5 Painting sold for 15500000 6 Rate of Return 11.29% =RATE(C4,0,-C3,C5,0) 7 p) Bond Par value $1,000 8 Term 10 years 9 Coupon rate 7% 10 Coupon payment made 1 annually 11 Coupon payment annual $70 12 Interest rate 8% 13 Bond price (PV) $932.90 =-PV(C12,C8,C11,C7,0) 14 q) Preference dividend per annum $5 15 Rate of interest 8% 16 Preference dividend is payable for ever 17 Preference share par value $100 assumed 18 Preference share price= $97.22 =-PV(C15,1,C14,C17,0) 19 r) Money required to repay $150,000,000 20 repayment is due in 8 years 21 Rate of interest 8% 22 yearly deposit at end 23 yearly deposit = $14,102,214 =-PMT(C21,C20,0,C19,0) 24 if the yearly deposit at the beginning of the year 25 Money required to repay $150,000,000 26 repayment is due in 8 years 27 Rate of interest 8% 28 yearly deposit at begin 29 yearly deposit = $13,057,606 =-PMT(C27,C26,0,C25,1) 30 s) Loan $120,000 31 repayment in annual installments 6 years 32 repayment at every year end 33 Rate of interest 8% 34 Yearly installment = $25,958 =-PMT(C33,C31,C30,0,0)
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