1. A security pays you an annual amount of $900 for 10 years. The seller of the security requires the first payment to be made today and the last payment to be made 9 years from today. Interest rate on this security is 5.75 percent per annum. Calculate the present value rounded to 2 decimal places. 2. An investment promises to pay into an account that pays you 6 percent annually, $150 per month for the next twenty-two years. Suppose the first deposit into the account is made one month from today what is the value of the amount which will be in the account at the end of thirty years? Rounded to 2 decimal places. 3 What will be the present value, if $5,400 is discounted back 4 years at an interest rate of 3% compounded semi-annually? 4. You are buying your first car for $20,000 and are paying $2,000 as a down payment. You have negotiated a nominal interest rate of 12 percent and you plan to pay-off the car over five years. What is the monthly payments you must make on this loan? 5. Maryann is planning a wedding anniversary gift of a trip to Hawaii for her husband at the end of 3 years. She will have enough to pay for the trip if she invests $2,500 per year until that anniversary and plans to make her first $2,500 investment on their first anniversary. Assume her investment earns a 4 percent interest rate, how much will she have saved for their trip if the interest is compounded in each of the following ways? a. Annually b. Quarterly C. Monthly 6. Your grandfather left an inheritance for you of $100,000. However you can only drawdown on the investment as follows: Years 1-3 $15,000 each year $10,000 each year Year 4 to 6 Year 7 $25,000 Interest on the fund is 5%. a) What is the present worth of this inheritance? b) Due to high liquidity interest rate have dropped to 4%. What will be the impact present worth of this inheritance as a consequence of the market change? 7. Your best friend Sam is in discussion with you about saving for his retirement. You are to advise him on how much he should deposit annually to meet his retirement needs. Assume that he will deposit a fixed annual amount for the next 20 years into a retirement savings account, starting one year from now. Sam has a son who will be attending college and plans to make 5 withdrawals (starting one year after making his final deposit into the retirement account) of $35,000 each to pay for his annual tuition for the following 5 years. Commercial Banks will be paying 6 percent on such retirement accounts for the next 25 years. Kindly advise Sam on how much he should place in the account annually to cover his retirement needs. 8. Match each sentence to the correct concept. a) The amount an investment is worth after one or more time periods is referred to as b) The process of finding the present value of some future amount is called c) Calculating the present value of a future cash flow to determine its value today is known as d) Interest earned on the principal and may be for a number of years may be called e) is the process of accumulating interest in an investment over time to earn more interest. f) The interest earned on both the initial principal and the interest reinvested from prior periods is referred to as 9. Compute the current price of a bond which matures in 40 years and has a required rate of return of 10 percent, a semi-annual coupon rate of 6 percent. 10. The face value for WICB Limited bonds is $250,000 and has a 6 percent annual coupon. The 6 percent annual coupon bonds matures in 2035, and it is now 2020. Interest on these bonds is paid annually on December 31 of each year, and new annual coupon bonds with similar risk and maturity are currently yielding 10 percent. How much should Karen sell her bonds today? 11. What is the semi-annual coupon bond's nominal yield to maturity (YTM), if the years to maturity is 15 years, and sells for 105% with coupons rate of 10%? Assume the par value of the bond is $1,000 . What is the annual coupon rate rounded to 2 decimal places if ABC Inc. recently issued a 20-year semi-annual coupon bond with a face value of $1,000. The market interest rate is 9 percent and is currently priced at $1,185. . MJI Corporation bonds mature in 6 years and have a yield to maturity of 8.5 percent. The par value of the bonds is $1,000. The bonds have a 10 percent coupon rate and pay interest on a semi-annual basis. Assuming there are no changes to interest rates during the course of the year, what are the current yield and capital gains yield on the bonds for this year? . XYZ Inc. issued 20-yr bonds which pay semi-annual coupons of $60 and is currently selling at $1,000. The firm has decided to raise new funds using bond financing with maturity of 10 years, par value of $1,000 and semi-annual coupons of $80. How many new bonds must XYZ Inc. issue to raise a sum of $10,000,000 in case if we assume that both bonds have the same interest rate. Rounded to the nearest whole number. . Bond Relationships. Select one or more of the following phrases to complete the following sentences. increase , decrease, par, discount, premium, less than, more than, greater, less, fall, rise a. If the current interest rate exceeds the bond's coupon rate, the bond will sell at a b. The value of a bond to increase if there is a/an in interest rates. c. A bond's coupon rate is more than the interest rate, therefore the bond is selling at a d. As interest rate increases the value of a bond will e. If the bondholder's required rate of return equals the coupon interest rate, the bond will sell at f. A premium bond sells for as maturity approaches. 8. The discount bond sells for as maturity approaches. h. A bondholder with a short-term bond is exposed to interest rate risk than when owing a long-term bond. i. When interest rates the market required rates of return and the bond prices will 1. If interest rates increase after a bond issue, the yield-to-maturity will