Suppose the government decides to issue a new savings bond that is guaranteed todouble in value if you hold it for 16 years. Assume you purchase a bond that costs $75.a. What is the exact rate of return you would earn if you held the bond for 16 years untilb. If you purchased the bond for $75 in 2017 at the then current interest rate of.21c. In 2025, instead of cashing in the bond for its then current value, you decide to holdit doubled in value? (Do not round intermediate calculations and enter your answeras a percent rounded to 2 decimal places, e.g., 32.16.)percent year, how much would the bond be worth in 2025? (Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)the bond until it doubles in face value in 2033. What annual rate of return will youearn over the last 8 years? (Do not round intermediate calculations and enter youranswer as a percent rounded to 2 decimal places,e.g..32.16.)a. Rate of returnb. Value of bondc. Rate of return4.43%76.269.4 %

Step1: Calculating the value of rate of return on the investment in the bond. We have,The…

Answered: Suppose the government decides to issue…

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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Lily Enterprise wants to accumulate a total sum of $824,000 in a few years. They want to deposit $145,800 today and make additional $29,150 deposits at the end of every six months thereafter. How many additional deposits and how long will it take to accumulate the $824,000 if interest rate is 5.99% compounded monthly? Enter the future value as a positive value in the FV box below. Enter PV and PMT as positive or negative values based on FV being positive. Report N (number of additional deposits) as a whole number. P/Y = C/Y = N = I/Y = PV = $ PMT = $ FV = $ Report your answer in years and months as whole numbers below. If years is an exact integer as 7 years, then enter 7 for years and 0 for months. You must enter a value in each box. It will take years and months.
Suppose that you want to take out a loan and that your local bank wants to charge you an annual real interest rate equal to 3%. Assuming that the annualized expected rate of inflation over the life of the loan is 1%, determine the nominal interest rate that the bank will charge you. What was the actual real interest rate on the loan if, over the life of the loan, actual inflation is 0.5%?
You have decided to buy a perpetual bond. The bond makes one payment at the end of every year forever and has an interest rate of 10%. If the bond initially costs $4,000, what is the payment every year? The payment at the end of each year is $. (Round to the nearest dollar.)
Do Now On January 15, 2021 an investor purchased a bond that will pay $20,000 on December 15, 2022. Assume that the interest rate is 12% quarterly. How much should he have paid on purchase?
If the owners choose to invest in bonds instead, they look at a $136,125 bond set to mature in 9 years with a bond rate of 2%, payable semi-annually. The market rate is 5.40%, compounded semi-annually. The owners will only purchase the bond if they can afford it with their savings $123,750, and they can get the bond at a discount because they think the market rate will go down, potentially making the bond more valuable in the future. 1. If the bond rate is 2%, will the bond be sold at a premium or a discount? Explain your answer.
Suppose the U.S. Treasury offers to sell you a bond for $2,000. No payments will be made until the bond matures 15 years from now, at which time it will be redeemed for $4,000. What interest rate would you earn if you bought this bond at the offer price?
Today is the 10th January 2023. You want to buy a Floating Rate Note (FRN) that matures on the 10th July 2027 and pays an annual coupon equal to LIBOR. Compute the fair price of the note. Use the data in Table 1. The LIBOR rate at selected dates are showed in Table 3. Please show your calculations. Discuss your result. Rates are continuously compounded- see attached image
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.
Compute how much interest a company would pay in 2023 on a 5-year, $500,000+U dollar loan (which it takes out today and has all principal due in 2028) that has an interest rate contractually set to equal 2.50% above the 1-year Treasury bond yield on June 15 each year if that specified T-bond rate turns out to be 9.23% on June 15, 2023. U=44
You would like to save up $1184 to travel in 4 years. To do so, you will buy a savings bond that has an interest rate of 15.3%. How much must you invest in the bond today to reach your goal? Answer:
You deposit $2X today, $3X one year from now and $3X two years from now. If there are different annual compounding interest rates per period as shown in the diagram below and if you had $19803 at the end of year 3, what is the value of X?
2 Refer back to the Series EE savings bonds we discussed at the very beginning of the chapter. a. Assuming you purchased a $50 face value bond, what is the exact rate of return you would earn if you held the bond for 20 years until it doubled in value? b. If you purchased a $50 face value bond in 2019 at the then current interest rate of .10 percent per year, how much would the bond be worth in 2029? c. In 2029, instead of cashing the bond in for its then current value, you decide to hold the bond until it doubles in face value in 2039. What rate of return will you earn over the last 10 years? Input area: a. Original value Number of years Future value b. Interest rate Number of years c. Number of years Output area: $50 a. Rate of return b. Future value C. Rate of return 20 (Use cells A6 to C11 from the given information to complete this question. Your answer for part b should be a positive value.) $100 0.10% 10

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