QUESTION 3 1. An investment pays you $30,000 at the end of this year, and $15,000 at the end of each of the four foll
Posted: Thu Apr 28, 2022 1:34 pm
QUESTION 3
1. An investment pays you $30,000 at the end of this year, and $15,000 at the end of each of the
four following years. What is the present value (PV) of this investment, given that the interest
rate is 5% per year? (2 marks)
2. What must be the price of a $10,000 bond with a 6.1% coupon rate, semiannual coupons, and
five years to maturity if it has a yield to maturity of 10% APR? (2 Marks)
3. If the current rate of interest is 8%, then the present value (PV) of an investment that pays
$1200 per year and lasts 24 years is? (2 marks)
4. You are borrowing money to buy a car. If you can make payments of $320 per month starting
one month from now at an interest rate of 12%, how much will you be able to borrow for the
car today if you finance the amount over 4 years? (2 marks)
5. Joe just inherited the family business, and having no desire to run the family business, he has
decided to sell it to an entrepreneur. In exchange for the family business, Joe has been offered
an immediate payment of $100,000. Joe will also receive payments of $50,000 in one year,
$50,000 in two years, and $75,000 in three years. The current market rate of interest for Joe is
6%. (2 marks)
1. An investment pays you $30,000 at the end of this year, and $15,000 at the end of each of the
four following years. What is the present value (PV) of this investment, given that the interest
rate is 5% per year? (2 marks)
2. What must be the price of a $10,000 bond with a 6.1% coupon rate, semiannual coupons, and
five years to maturity if it has a yield to maturity of 10% APR? (2 Marks)
3. If the current rate of interest is 8%, then the present value (PV) of an investment that pays
$1200 per year and lasts 24 years is? (2 marks)
4. You are borrowing money to buy a car. If you can make payments of $320 per month starting
one month from now at an interest rate of 12%, how much will you be able to borrow for the
car today if you finance the amount over 4 years? (2 marks)
5. Joe just inherited the family business, and having no desire to run the family business, he has
decided to sell it to an entrepreneur. In exchange for the family business, Joe has been offered
an immediate payment of $100,000. Joe will also receive payments of $50,000 in one year,
$50,000 in two years, and $75,000 in three years. The current market rate of interest for Joe is
6%. (2 marks)