Pacific Amalgamated (PA) issues a coupon bond that makes an interest payment (F) of €100 each year for five years and then repays the face value (V) of €1,000 at the end of that time. Assume the interest rate (i) is 2%. Which of the following formulas do investors need to use to determine the present value of P = € of this coupon bond? O A single payment of the face value at maturity The sum of fixed payments O The sum of fixed payments and a single payment of the face value at maturity Pacific Amalgamated (PA) issues 10-year bonds in 2017 with a €1,000 face value and a €50 coupon. The interest rate at which PA issues these bonds is When the bond reaches maturity in 2021, how much will each investor holding one of these PA bonds receive? The initial investment of €1,000 plus €500 worth of coupons (€50 per year x 10 years) O €500 worth of coupons (€50 per year x 10 years) The initial investment of €1,000 plus €50 for the 10th coupon Assume interest rates rise dramatically. The market price of these PA bonds will

Pacific Amalgamated (PA) issues a coupon bond that makes an interest payment (F) of €100 each year for five years and then repays the face value (V) of €1,000 at the end of that time. Assume the interest rate (i) is 2%. Which of the following formulas do investors need to use to determine the present value of P = € of this coupon bond? O A single payment of the face value at maturity The sum of fixed payments O The sum of fixed payments and a single payment of the face value at maturity Pacific Amalgamated (PA) issues 10-year bonds in 2017 with a €1,000 face value and a €50 coupon. The interest rate at which PA issues these bonds is When the bond reaches maturity in 2021, how much will each investor holding one of these PA bonds receive? The initial investment of €1,000 plus €500 worth of coupons (€50 per year x 10 years) O €500 worth of coupons (€50 per year x 10 years) The initial investment of €1,000 plus €50 for the 10th coupon Assume interest rates rise dramatically. The market price of these PA bonds will

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter16: The Markets For Labor, Capital, And Land

Section: Chapter Questions

Problem 12P

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Suppose a ten-year bond with a $10,000 face value pays a 5.0% annual coupon (at the end of the year), has 2 years left to maturity, and has a discount rate of 6.5%. Which of thé following would give you the present value - i.e. the price – of the bond? Select one: a. Present Value = Price = $10,500/(1.065)² %3D %3D b. Present Value = Price = [$500/(1.065)] + [$500/(1.065)²] + ... + [$500/(1.065)NI, where N=00 c. Present Value = Price = [$500/(1.065)] + [$500/(1.065)²] +I$10,000/(1.065)²] %3D d. Present Value = Price = [$500/(1.065)] + [$500/(1.065)²]
Lorenz curves also can be used to provide a relative measure of the distribution of the total assets of a country. Using data in a report by the economic committee of a certain country, an economist produced the following Lorenz curves for the distribution of total assets in the country in 1963 and 1983, shown below. f(x) = x10 Lorenz curve for 1963 g(x) = x13 Lorenz curve for 1983 Find the Gini index of income concentration for each Lorenz curve and interpret the results. .... What is the Gini index for 1963? (Round to three decimal places as needed.) What is the Gini index for 1983? (Round to three decimal places as needed.) Interpret your results. O A. Total assets were more equally distributed in 1963 O B. Total assets were more equally distributed in 1983 O c. Total assets were distributed the same in 1963 as in 1983.
An investor can invest money with a particular bank and earn a stated interest rate of 4.40%; however, interest will be compounded quarterly. What i are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate Rahul needs a loan and is speaking to several lending agencies about the interest rates they would charge and the terms they offer. He particularly likes his local bank because he is being offered a nominal rate of 4%. But the bank is compounding bimonthly (every two months). What is the effective interest rate that Rahul would pay for the loan? ○ 3.945% 4.152% 4.067% 04.186 % Another bank is also offering favorable terms, so Rahul decides to take a loan of $12,000 from this bank. He signs the loan contract at 5% comanded daily for 12 months. Based on a 365-day year, what is the total amount that Rahul owes the bank at the end of the loan's term? (Hint: To calculate the number of days,…
(3) Suppose we invested $20,000 at an annual rate of 5% where interest is compounded continuously. (a) Write down an IVP that describes the amount of money y(t) that you will have in your account after t years. Then, solve the IVP and compute how much money you expect to have in your account after 10 years. (b) Now suppose you want to have $100,000 in your account after those 10 years. In order to accomplish that, you will make yearly deposits of D dollars. Find D, so that y(10) = $100,000. Note that we still have y(0) = $20,000.
Problem #1: Gwen just bought solar panels to power ventilation at her chicken farm. The panels cost $2000 and will reduce her electricity bills by $40 per month. How long will it take her to recoup her investment in the panels if she can warn 12% interest, compounded monthly, on her money? (Hint: You can use either the Capital Recovery Factor formula or the Series Present Worth Factor formula, or you can use linear interpolation!)
2. How long will an investment double itself if interest is earned at a compounded rate of: a. 3% per quarter? b. 0.25% per week (assumption: 1 year = 52 weeks)?
Suppose you purchased a corporate bond with a 10-year maturity. a $1,000par value, a 10% coupon rate, and semiannual interest payments. What all this means that you receive $50 interest payment at the end of each six-month period for 10 years (20 times). Then, when the bond matures, you will receive the principal amount (the face value) in a lump sum. Three years after the bonds were purchased, the going rate of interest (coupon rate) on new bonds fell to 6% (or 6% compounded semiannually). What is the current market value (P) of the bond (3 years after the purchase)?
2. Daniel invests $5,000 today into an investment account. Five years from today, he will begin investing $3,000 every year for ten years. He will then invest $6,000 for the five years after that. With an annual compounding interest rate of 3%, what is the valuation in the account twenty years from today? m
Draw the cash flow diagrams corresponding to the formulas given below. Specify the interest rates and the period in which the X value is calculated. (Note: You are not expected to calculate the X value!) a. X = [300(F/A; %6; 4) - 100 (F/P; %6; 2)1(A/P; %6; 2) b. X = [300(F/A, %10,3)-200(F/G, %10,3)](F/P,%10,1) + [300(F/A,%10,3) + 200(F/G,%10,3)|(P/F,%10,3)
An investment of P50,000 is made at the beginning of each month for 5 years. How much will the investment be at the end of the term, if interest is 7% compounded monthly? A.P3,505,944.00 B.P3,600,526.35 C.P3,649.020.00 D.P3,552.839.24
. A firm has $75,000 of cost of goods sold and $5,000 of accounts payable. Assume there are 365 days a year, the firm's payables deferral period (PDP) is 24.33 days. The firm's new CFO believes that the firm could delay the payments of accounts payable to increase its PDP (without affecting cost of goods sold) to 30 days. If this could be done, by how much cash would be freed up due to increase in accounts payable? 3. Which of the following statements is NOT correct? Question 13 options: In practice, most firms operate under conditions of capital rationing because they have more acceptable independent projects than they can fund. The before-tax cost of debt is used as the component cost of debt for purposes of developing the firm's weighted average cost of capital. The capital structure that minimizes a firm's weighted average cost of capital also maximizes its stock price. New common stock is typically the most expensive form of equity, followed by retained…
c) You invest RM2,500 at a variable rate of interest. Initially, the rate is 5% compounded annually for the first year, and the rate increases half percent annually (0.5%) for five years. Compute how much will you have in the account after five years. d) Mr Chong is planning to start saving for his son's college education fund. When the time comes, he wishes to accumulate RM45,000 at the end of 17 years. Assuming that his savings account will pay 6.5% compounded annually, calculate how much would he will have to deposit if: i) 11) he wants to deposit an equal amount at the end of each year. he wants to deposit one lump sum today.