Global Financial Management

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666666_

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Business Finance

Description

Answer Problem 4-1; problem 4-2; problem 4-6; problem 4-8; and redo problem 4-6 by changing the word FVA to PVA; problem 5-1; problem 5-7 and Additional problems.

Additional Problems:

Problem 1:

A. Calculate the PV of $100 due in 5 years compounded monthly at 12%.

B. Calculate the FV of $1000 due in 3 years at 6%.

C. Calculate the FVA of $30 due at the end of each of the next 5 years at 4%.

D. Calculate the PVA of $30 due at the end of each of the next 5 years at 4%.

Problem 2:

Compute the EAR of 12% compounded monthly.

Problem 3:

You take out an amortized loan for $10,000. The loan is to be paid in equal installments at the end of each of the next 5 years. The interest rate is 8%. Construct an amortization schedule.

Problem 4:

A. Calculate the PV of $100 due in 5 years compounded daily at 12%.

B. Calculate the FV of $1000 due in 3 years at 6% compounded quarterly.

C. Calculate the FVA of $300 due at the end of each of the next 5 years at 4%.

D. Calculate the PVA of $300 due at the end of each of the next 5 years at 4%.

Problem 5:

Compute the EAR of 10% compounded daily.

Problem 6:

A bond was issued 3 years ago at a coupon rate of 6%. Since then, interest rates have declined to 4%. The bond matures 20 years from today. Compute the current market value of this bond.

Problem 7:

A bond was issued 2 years ago. It's original maturity was 20 years. The coupon rate is 4% and the current YTM is 6%. Compute its intrinsic value.

Unformatted Attachment Preview

EASY PROBLEMS 1-8 If you deposit $10,000 in a bank account that pays 10% interest annually, how much will be in your account after 5 years? (4-1) Future Value of a Single Payment (4-2) Present Value of a Single Payment What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually? (4-6) Future Value: Ordin- ary Annuity versus Annuity Due What is the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this were an annuity due, what would its future value be? (4-8) Annuity Payment and EAR You want to buy a car, and a local bank will lend you $20,000. The loan would be fully amortized over 5 years (60 months), and the nominal interest rate would be 12% with interest paid monthly. What is the monthly loan payment? What is the loan's EFF%? (5-1) Bond Valuation with Annual Payments Jackson Corporation's bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds? (5-7) Bond Valuation with Semiannual Payments INTERMEDIATE PROBLEMS 7–20 Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?
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Explanation & Answer

Attached.

Surname 1

Name
Tutor
Course
Date
Problem 1:
A)
Present value= P×(1÷(1+r)n)
r is interest rate per period
P is payment
= $100×(1÷(1+(12%÷12))(5×12))
= $55.04
B)
Future value OF $1 at 6% for 3 years is 1.19102
Future value o $1000 = $1000x1.19102
= $1191.02
C)
FUTURE VALUE OF $1 at 4% for 5 years is 1.21665
Future value $30 = $30x1.21665
= $36.50

Surname 2

D)
Present value of $1 at 4% for 5 years is 0.822
Present value of $30 = $30 x 0.822
= $24.66
Problem 2:
Interest = 12%
Monthly = 12
Calculation of EAR
EAR= (1+ R/M)m-1
= (1+12%/12)12-1
= 12.68%
Problem 3
An amortization schedule
Period

Payment

principle

Interest part

Balance

Amount

Part

part

Owed

1

$2505

$1705

$800

$8295

2

$2505

$1841

$664

$6455

3

$2505

$1988

$516

$4466

4

$2505

$2147

$357

$2319

5

$2505

$2319

$186

$-

Surname 3

Problem 4
A)
PV calculations
FV = $100
Interest 12%
Year = 5 (compounded daily)
PV = FV/(1+r/k)n
...