SECTION II: PROBLEMS 10x8pts 80 peints 1) You just graduated, and you plan to wo
ID: 2806976 • Letter: S
Question
SECTION II: PROBLEMS 10x8pts 80 peints 1) You just graduated, and you plan to work for 10 years and then to leave for the Australian "Outback" bush country. You figure you can save $1,000 a year for the first 5 years and $2,000 a year for the next 5 years. These savings cash flows will start one year from now. In addition, your family has just given you a $5,000 graduation gift. If you put the gift now, and your future savings when they start, into an account which pays 8 percent compounded annually, what will your financial "stake" be when you leave for Australia 10 years from now? If a 5-year regular annuity has a present value of $1,000, and if the interest rate is 10 percent, what is the amount of each annuity payment? 2) The current market price of Lundqvist Corporation's 10 percent, 10-year bonds is $1,297.58. A 10 percent coupon interest rate is paid semiannually, and the par value is equal to $1,000. What is the YTM (stated on a simple, or annual, basis) if the bonds mature 10 years from today? 3)Explanation / Answer
1. Future value after 10 years= 31147.79
2. Annuity payment= 263.80
3. YTM = 6%.
using trail and error method, YTM of 6% gives the bond present price of 1297.58
Year Cash flow Future value factor Future value 0 5000 2.15892 10,794.62 1 1000 1.99900 1,999.00 2 1000 1.85093 1,850.93 3 1000 1.71382 1,713.82 4 1000 1.58687 1,586.87 5 1000 1.46933 1,469.33 6 2000 1.36049 2,720.98 7 2000 1.25971 2,519.42 8 2000 1.16640 2,332.80 9 2000 1.08000 2,160.00 10 2000 1.00000 2,000.00 Total future value 31,147.79Related Questions
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