30. You will receive $100 from a savings bond in 3 years. The nominal interest rate is 8%. a. What is the present value of the proceeds from the bond? (Do not round intermediate calculations. Round your final answer to nearest cent.) b. If the inflation rate over the next few years is expected to be 3%, what will the real value of the $100 payoff be in terms of today's dollars?(Do not round intermediate calculations. Round your final answer to nearest cent.) c. What is the real interest rate? (Round your answer to 3 decimal places.)

30. You will receive $100 from a savings bond in 3 years. The nominal interest rate is 8%. a. What is the present value of the proceeds from the bond? (Do not round intermediate calculations. Round your final answer to nearest cent.) b. If the inflation rate over the next few years is expected to be 3%, what will the real value of the $100 payoff be in terms of today's dollars?(Do not round intermediate calculations. Round your final answer to nearest cent.) c. What is the real interest rate? (Round your answer to 3 decimal places.)

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 12MC: (1) What is the value at the end of Year 3 of the following cash flow stream if the quoted interest...

See similar textbooks

Related questions

Q: Suppose you bought a 25-year annuity of $7,900 per year at the current discount rate of 12 percent…

A: The objective of this question is to calculate the present value of an annuity under different…

Q: will the real value of the $100 payoff be in terms of today’s dollars?

A: SOLUTION:- a. Present Value = Future Value /(1+i)n Present Value = 100/(1+8.40%)2 Present Value =…

Q: Which would you prefer, $650 today or $650 in one year? Does your answer depend on when you need the…

A: a. Having $200 today is equivalent to having 650 × 1.036 = $673.4 in one year. future value =…

Q: Suppose that you buy a two-year 8.9% bond at its face value. a-1. What will be your total…

A: Given information: 2 year bond with yield : 8.9% Inflation for the first year : 3.9% Inflation for…

Q: a-1. What will be your total nominal return over the two years if inflation is 2.3% in the first…

A: Nominal returnThe overall percentage return on investment without adjusting for the effects of…

Q: Suppose the interest rate on a 3-year Treasury Note is 1.25%, and 5-year Notes are yielding a 3.50%.…

A: Answer: A 2 year treasuries will be yielding 3 years from now should be 6.97%

Q: a) You invest 155 000 TL for a year. At the end the year, you have 174 375 TL net in your account.…

A: We will apply the formula to calculate the real interest rate using the nominal interest rate and…

Q: a. If the interest rate is 5.0% per year, approximately how long will it take for your money to…

A: The Rule of 72:The Rule of 72 is a simple, effective rule that is frequently used to determine how…

Q: The two-year interest rate is 11.2% and the expected annual inflation rate is 5.6%. a.What is…

A: Nominal interest rate is related to finance as well as economics. Nominal interest rate is…

Q: Suppose you just bought an annuity with 11 annual payments of $16,400 at a discount rate of 13.5…

A: Present value refers to a concept of time, value, and money that is issued for estimating the…

Q: interest rate on a 3-year treasury note is 2.75%, and 6-year notes are yielding 3.50%. Based on the…

A: According to the expectation theory short term interest would be on the basis of long term interest…

Q: Suppose that you buy a TIPS (inflation-indexed) bond with a 1-year maturity and a coupon of 2% paid…

A: Face Value of Bond = $1,000Coupon Rate = 2% or 0.02Inflation Rate = 10% or 0.10Time to Maturity = 1…

Q: If inflation is anticipated to be 6 percent during the next year, while the real rate of interest…

A: The nominal return is the sum of the inflation rate and the real rate that we can calculate using…

Q: You will receive $100 from a savings bond in 4 years. The nominal interest rate is 7.90%. a) What is…

A: BondA bond is a financial instrument which represents a promise, in which the borrower pledges to…

Q: If the one-year and two-year interest rates are 6.5% and 7% respectively, what should be the forward…

A: Expectation theory, also known as the Pure Expectations Theory, is a theory that attempts to explain…

Q: Suppose you just bought an annuity with 10 annual payments of $16,500 at a discount rate of 13.75…

A: The objective of the question is to calculate the present value of an annuity under different…

Q: Suppose you just bought an annuity with 12 annual payments of $15,700 at a discount rate of 11.75…

A: Annuity payment = $15,700Number of annuities = 12Discount rate = 11.75%

Q: suppose the interest rate on a 3 year treasury note is 1.00% and 5 year notes are yielding 3.50%…

A: We know the spot rates. We have to calculate the forward rate. If Si is the spot rate for year i and…

Q: 3. Suppose you are considering a PLAM with the following characteristics: Mortgage Amount = $175,000…

A: In the Price level adjusted mortgage (PLAM), the unpaid principle balance is periodically adjusted…

Q: Suppose that you buy a two-year 7.3% bond at its face value. a-1. What will be your total…

A: Given: Interest on bond = 7.3% Maturity period = 2 years 1st year inflation = 2.3% 2nd year…

Q: The two-year interest rate is 10.4%, and the expected annual inflation rate is 5.2%. a. What is the…

A: The nominal interest rate is the rate at which transactions such as lending and borrowing occur, it…

Q: a) What would be the future value of your investment? b) Now assume that inflation is expected to be…

A: Information Provided: Present value = 2500 Nominal interest rate = 9% Inflation rate (b) = 3%…

Q: ou purchase a certificate of deposit and expect an inflation rate of 1.25% over the next year. Your…

A: Real rate of return is the net rate of return after deduction of inflation from the nominal rate of…

Q: You will receive $100 from a savings bond in 2 years. The nominal interest rate is 8.40%. a.…

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…

Q: The real risk-free rate is 2.75%. Inflation is expected to be 3.75% this year, 4.25% next year, and…

A: Given: Particulars Rate Real risk free rate 2.75% Year 1 Inflation 3.75% Year 2 Inflation…

Q: You will receive $100 from a savings bond in 4 years. The nominal interest rate is 8.50%. a.…

A: a) Present value of the proceeds of $100 from the bond can be calculated using the below formula:…

Question

30.

You will receive $100 from a savings bond in 3 years. The nominal interest rate is 8%.

a. What is the present value of the proceeds from the bond? (Do not round intermediate calculations. Round your final answer to nearest cent.)

b. If the inflation rate over the next few years is expected to be 3%, what will the real value of the $100 payoff be in terms of today's dollars?(Do not round intermediate calculations. Round your final answer to nearest cent.)

c. What is the real interest rate? (Round your answer to 3 decimal places.)

d. Show the real payoff from the bond in part (b), discounted at the real interest rate in part (c) gives the same present value for the bond as you found in part (a). (Do not round intermediate calculations. Round your final answer to nearest cent.)

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1 What is present value?

VIEW

Step 2 Calculating present value

VIEW

Step 3 What is real worth of cash flow

VIEW

Step 4 What is real interest rate ?

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

You will receive $100 from a savings bond in 2 years. The nominal interest rate is 8.40%. a. If the inflation rate over the next few years is expected to be 3.40%, what will the real value of the $100 payoff be in terms of today’s dollars? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the real interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Calculate the real payoff from the bond [from part (a)] discounted at the real interest rate [from part (b)]. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
You will receive $100 from a savings bond in 4 years. The nominal interest rate is 7.90 %. a) What is the present value of the proceeds from the bond? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b) If the inflation rate over the next few years is expected to be 2.90%, what will the real value of the $100 payoff be in terms of today's dollars? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c)What is the real interest rate? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. d)Calculate the real payoff from the bond [from part (b)] discounted at the real interest rate [ from part (c)]. Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
a. If the interest rate is 5.0% per year, approximately how long will it take for your money to quadruple in value? (Use the Rule of 72. Round your answer to 2 decimal places.) Number of years: b. If the inflation rate is 3.5% per year, what will be the change in the purchasing power of your money over this period? (Use the Rule of 72 to compute the number of years. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Purchasing power increases or decreases by %
suppose the interest rate on a 3 year treasury note is 1.00% and 5 year notes are yielding 3.50% Based on the expectatiions theory, what does the market believe that 2 year treasuries will be yielding 3 years from now?
Suppose you bought a 25-year annuity of $7,900 per year at the current discount rate of 12 percent per year. a. What is the value of your annuity today? (Do not round intermediate calculations and round your answer to 2 decimal places b. What is the present value if interest rates suddenly drop to 7 percent? c. What is the present value if interest rate suddenly rise to 17 percent?
Raghubhai
Suppose you just bought an annuity with 10 annual payments of $16,500 at a discount rate of 13.75 percent per year. a. What is the value of the investment at the current interest rate of 13.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What happens to the value of your investment if interest rates suddenly drop to 8.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What happens to the value of your investment if interest rates suddenly rise to 18.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Suppose you just bought an annuity with 12 annual payments of $15,700 at a discount rate of 11.75 percent per year. a. What is the value of the investment at the current interest rate of 11.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What happens to the value of your investment if interest rates suddenly drop to 6.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What happens to the value of your investment if interest rates suddenly rise to 16.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Present value at 11.75 percent b. Present value at 6.75 percent $ 124,187.88 153,795.59 c. Present value at 16.75 percent $ 97,472.81
a) You invest 155 000 TL for a year. At the end the year, you have 174 375 TL net in your account. If the inflation realizes at %10 fot this year, calculate real rate of return? Can real interest rates be negative? Give a simple example?
Suppose you just bought an annuity with 11 annual payments of $16,400 at a discount rate of 13.5 percent per year. What is the value of the investment at the current interest rate of 13.5 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. What happens to the value of your investment if interest rates suddenly drop to 8.5 percent? Note: Do not round intermediate calculations and round
If you are expecting to get OMR 11240 at the end of 9 years; calculate its present value if the interest rate is 2.24% and is computed monthly? Select one: a. 9024.61 b. 9046.11 c. 9042.16 d. 9189.55 e. None of the optio
1. If you receive $29 each quarter for 19 years and the discount rate is 0.05, what is the present value? (show the process and can use financial calculator)