1. What is the present value of the following uneven cash flow stream −$50, $100, $75, and $50 at theend of Years 0 through 3?
The appropriate interest rate is 10%, compounded annually
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| 2. We sometimes need to find out how long it will take a sum of money (or something else, such as earnings, population, or prices) to grow to some specified amount. For example, if a company’s sales are growing at a rate of 20% per year, how long will it take sales to double |
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| 3. Will the future value be larger or smaller if we compound an initial amount more often than annually—for example, every 6 months, or semiannually—holding the stated interest rate constant? Why? |
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| 4. What is the effective annual rate (EAR or EFF%) for a nominal rate of 12%, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily? |
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| 5. Suppose that on January 1 you deposit $100 in an account that pays a nominal (or quoted) interest rate of 11.33463%, with interest added (compounded) daily. How much will you have in your account on October 1, or 9 months later? |
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A firm issues a 10-year, $1,000 par value bond with a 10% annual coupon and a required rate of return is
10%. |
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What would be the value of the bond described above if, just after it had been issued, the expected
inflation rate rose by 3 percentage points, causing investors to require a 13% return? Would we now have a discount or a premium bond?. |
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8. What is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value bond that sells for
$887.00? |
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What are the total return, the current yield, and the capital gains yield for the discount bond
In Question #8 at $887.00? |
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