Answer? ? Financial accounting question You are considering investing in a savings bondthat will pay $15,000 in ten years. If the competitivemarket interest rate is fixed at 8% per year, what isthe bond worth today?A) $8,375.92B) $6,947.90C) $3,238.38D) $8,467.10E) None

Step 1: Define Savings BondsSavings bonds refer to bonds that the government issues. They have a…

Answered: You are considering investing in a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 11P

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Which of the following investments that pay will $18,500 in 8 years will have a higher price today? The security that earns an interest rate of 8.50%. The security that earns an interest rate of 12.75%.
a. Assuming you purchased the bond for $350 what rate of return would you earn if you held the bond for 25 years until it matured with a value $1000? a. Rate of return____% b. Suppose under the terms of thebond you could redeem the bond in 2024. DMF agreed to pay an annual interest rate of 1.4 percent until the date. How much would the bond be worth at that time? b. Bond value_____ c. In 2024 instead of cashing in the bond for its then current value you decide to hold the bond until it mature in 2043. What annual rate of return will you earn over the last 19 years? c. Rate of return___%
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Topic 2: Return measures2. Which of the following investments do you prefer?(a) Purchase a zero-coupon bond, which pays $1000 in ten years, for a price of $550.(b) Invest $550 for ten years in a bank savings account at a guaranteed annual interestrate of 5.5%.1
3. What is the present value of a $20,000 payment you would receive 5 years from now, assuming an annual interest rate of 7%? 4. What is the future value 6 years from now of $15,000 you hold today when the annual interest rate is 4%? 5. What is the current price of a discount bond with a face value of $10,000 and an interest rate of 6%? 1
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
3. Suppose that you observe the following two bonds being traded, both of which pay coupons annually and have a $100 face value: Bond Coupon Maturity Rate A B 6% 2% 30 years 30 years Price $147.13 $64.47 If the Law of One Price holds, what is the price of a 30-year Annuity that pays $8 per year starting at t = 1?
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4. Suppose that an investment institution offers you two kinds of bonds and you are willing to take one of them. The first bond, called 'Bond A1' pays you $5000 in 10 years, while the second bond, called 'Bond B1' pays you the same amount but in 20 years. а. If the interest rate is 5%, what is the value of each bond today? Which bond is worth more? Why? b. If the interest rate increases to 8%, what is the value of each bond? Which bond has a larger percentage change in value? After knowing the answer of A and B, you will С. be able to complete this sentence: "The value of bond [rises / falls] when the interest rate increases, and bonds with longer time to maturity are [more/less] sensitive to changes in the interest rate"
A zera coupon bond with promised payment of $100 to be paid in 5 years has price equal to$80. What is the YTM?
What is the present value (i.e., price) today of a bond that will pay its owner \$1,000,000$1,000,000 five years from today if the discount rate is 4\%4% per annum?

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You are considering investing in a savings bond that will pay $15,000 in ten years. If the competitive market interest rate is fixed at 8% per year, what is the bond worth today? A) $8,375.92 B) $6,947.90 C) $3,238.38 D) $8,467.10 E) None