11.Find the interest rates or rates of return on each of the following: a. You b
ID: 2819781 • Letter: 1
Question
11.Find the interest rates or rates of return on each of the following: a. You borrow $200 and promise to pay back $210 at the end of one year. b. You borrow $20,000 and promise to pay back $32,578 at the end of 10 years. c. You borrow $2000 and promise to make payments of $514.18 per year for five years. 12.You borrow $15,000 and agree to repay the balance in five equal annual installments to include principal plus 8% interest, what should the payments be? 13.Your company has a $1,000,000 bond issue that matures in 15 years. The bond indenture requires annual payments into a sinking fund. You figure that you can earn 10% on all deposits. what must the sinking fund payments be, assuming they are equal? 14.You are paying into a sinking fund that earns 6%. If the payments are $15,000 per year, how much will be in the fund in 15 years? 15.Your broker offers to sell you a note for $11,300 that will pay $2000 per year for 10 years. If you buy the note, what rate of interest will you be earning?Explanation / Answer
11 a Borrow $200 Pay $210 Interest $10 Interest rate = $10/$200 5.00% b Borrow $20,000 Pay $32,578 No of yrs 10 Using the rate function in excel we get RATE(10,0,-20000,32578) 5.00% c Borrow $2,000 Pay $514.18 per year No of yrs 5 Using the rate function in excel we get RATE(5,-514.18,2000,0) 9.00% 12 Borrow $15,000 NPER 5 Interest Rate 8% Using the PMT function in excel we get PMT(8%,5,15000) ($3,756.85) Payments to be made Interest plus principal is $3756.85 13 Bond $1,000,000 NPER 15 yrs Rate 10% Using the PMT function in excel we get PMT(10%,15,0,1000000) ($31,473.78) 14 Years 1 15000*(1.06^15) 35948.37 2 15000*(1.06^14) 33913.56 3 15000*(1.06^13) 31993.92 4 15000*(1.06^12) 30182.95 5 15000*(1.06^11) 28474.48 6 15000*(1.06^10) 26862.72 7 15000*(1.06^9) 25342.18 8 15000*(1.06^8) 23907.72 9 15000*(1.06^7) 22554.45 10 15000*(1.06^6) 21277.79 11 15000*(1.06^5) 20073.38 12 15000*(1.06^4) 18937.15 13 15000*(1.06^3) 17865.24 14 15000*(1.06^2) 16854 15 15000*(1.06^1) 15900 Amount in sinking fund $ 370087.9 15 Note $11,300 Per year $2,000 No of Yrs 10 yrs Using the rate function in excel we get RATE(10,2000,-11300,0) 12.00%
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