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Years 1 – 3 $15,000 each year
Year 4 to 6 $10,000 each year
Year 7 $25,000
Interest on the fund is 5%.
a) What is the present worth of this inheritance?
b) Due to high liquidity interest rate have dropped to 4%. What will be the impact on the present worth of this inheritance as a consequence of the market change?
What is the semi-annual coupon bond’s nominal yield to maturity (YTM), if the years to maturity is 15 years, and sells for 119% with coupons rate of 10%? Assume the par value of the bond is $1,000.
Your brother has a two-year old baby girl. Thinking ahead, he is considering saving for his daughter’s college education, which will begin in 16 years.
If the bank promises to pay your brother an interest rate of 4% per year, how much money will your brother need to put into his saving account today to have $2,000,000 in 16 years?
Show all your calculations.
immediately on retirement or $2,100,000 five years after the date of his
retirement.
(a) Which option should Jamie choose if the interest rate is 0% per year?
(b) Which option should Jamie choose if the interest rate is 10% per year?
Investment A offers to pay you $10,000 per year for 8 years, whereas Investment B offers to pay you $12,500 per year for 5 years.
(a) Determine if Investment A or Investment B has the higher present value if the interest rate is 5%.
(b) Determine if Investment A or Investment B has the higher present value if the interest rate is 15%. Show all your calculations.
(a) a final year undergraduate student
(b) a young couple with a new-born baby
(c) an older couple (age 50+) with no dependent child
(d) a single mother with a pre-school son
Briefly explain your answers.
