Mr. Chan is the portfolio manager for a large insurance company. He is considering investing $5 million to purchase some bonds of Khabet Inc. All of Khabet's bonds have market prices that imply a yield to maturity of 8% (paid semi-annually). He is particularly interested in a bond that matures in 6 years and pays a 10% coupon. At what price should this bond currently sell? a) You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $250,000 today or receive payments of $1,400 a month for 20 years. You can earn 6 percent on your money. Which option should you take? b) You want to buy a house. You have $20,000 for down payment and closing costs. The down payment is 10% and the closing costs are 10% of the loan amount. The bank is willing to allow you to make monthly payments of 30% of your salary at an annual interest rate of 8% for 30 years, and your annual salary is $36,000. c) How much can you offer for the house?
Mr. Chan is the portfolio manager for a large insurance company. He is considering investing $5 million to purchase some bonds of Khabet Inc. All of Khabet's bonds have market prices that imply a yield to maturity of 8% (paid semi-annually). He is particularly interested in a bond that matures in 6 years and pays a 10% coupon. At what price should this bond currently sell? a) You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $250,000 today or receive payments of $1,400 a month for 20 years. You can earn 6 percent on your money. Which option should you take? b) You want to buy a house. You have $20,000 for down payment and closing costs. The down payment is 10% and the closing costs are 10% of the loan amount. The bank is willing to allow you to make monthly payments of 30% of your salary at an annual interest rate of 8% for 30 years, and your annual salary is $36,000. c) How much can you offer for the house?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Mr. Chan is the portfolio manager for a large insurance company. He is considering
investing $5 million to purchase some bonds of Khabet Inc. All of Khabet's bonds have
market prices that imply a yield to maturity of 8% (paid semi-annually). He is particularly
interested in a bond that matures in 6 years and pays a 10% coupon. At what price
should this bond currently sell?
a)
You are the beneficiary of a life insurance policy. The insurance company informs you
that you have two options for receiving the insurance proceeds. You can receive a lump
sum of $250,000 today or receive payments of $1,400 a month for 20 years. You can
earn 6 percent on your money. Which option should you take?
b)
You want to buy a house. You have $20,000 for down payment and closing costs. The
down payment is 10% and the closing costs are 10% of the loan amount. The bank is
willing to allow you to make monthly payments of 30% of your salary at an annual
interest rate of 8% for 30 years, and your annual salary is $36,000.
c)
How much can you offer for the house?
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