1. Determine the discount rate assuming the PV of $1080 at the end of 1-year is $980? 2. $9,800 is deposited for 10 years at 6% compounded annually, determine the FV? 3. What will be the present value, if $6,800 is discounted back 4 years at an interest rate of 4% compounded semi-annually? 4. As the Fund Manager for Bank of Trinidad and Tobago Limited, you are to advise the following two (2) clients based on their respective financial situations. (Graded Manually) a) Your best friend has asked to assist him in making the best investment out of the following options. Which would you advise him to choose and why? Show your workings to justify your response. Option 1: $12,000 in 5 years' time at 6 percent interest. Option 2: $15,000 in 2 years' time at 9 percent interest. Option 3: $15,000 today. No strings attached. Option4: $5,000 each year for 2 years at 7 percent interest compounded semi-annually. b) Betty Kay has a contract in which she will receive the following payment for the next 5 year: $1,000, $2,000, $3,000, $4,000 and $5,000. She will then receive an annuity of $8,500 a year for the end of the 6th through the end of the 15th year. She is offered a $30,000 to cancel the contract. If the payments are discounted at 14 percent should she cancel the contract? Show all workings. 5. Maryann is planning a wedding anniversary gift of a trip to Hawaii for her husband at the end of 5 years. She will have enough to pay for the trip if she invests $5,000 per year until that anniversary and plans to make her first $5,000 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 Monthly c. 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 Year 4 to 6 $10,000 each year 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 on the present worth of this inheritance as a consequence of the market change? 7. Consider Donald and Joe who are both 30-years of age and recently graduated with a degree in Finance. Both Donald and Joe plan to retire at age 67, and the retirement plan pays a 12 percent per annum return and is also compounded monthly. Donald plans to invest $1,000 per month beginning next month into his retirement account, while Joe shall invest $2,000 per month. Joe however does not plan to begin investing until 10 years after Donald begins to invest. How much will each of the newly grads have at retirement? 8. On December 31, 2019, Speedo's Limited bought a yacht for $55,000, but made a down payment of $10,000. Speedo's agreed to pay the balance in 10 equal end-of-year instalments and 10% interest on the declining balance. Calculate the annual payments. 9. 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 10. A bond matures in 15 years and pays an 8 percent annual coupon. The bond has a face value of $1,000 and currently sells for $985. What is the bond's current yield and yield to maturity? 11. 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? 12. What is the semi-annual coupon bond's nominal yield to maturity (YTM), if the years to maturity is 15 years, and sells for 119% with coupons rate of 10%? Assume the par value of the bond is $1,000. 13. 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? 14. PP Inc. has outstanding bonds with an annual 8% coupon. The bonds have a par value of $1000 and a price of $865. The bond will mature in 11 years. What is the yield to maturity on the bonds? 15. 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 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. g. 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