Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. You have $10,000 and you want to invest it for 3 years in a bank CD account. Hana Bank offers an annual percentage rate

1. You have $10,000 and you want to invest it for 3 years in a bank CD account. Hana Bank offers an annual percentage rate (APR) of 8% compounded quarterly, and Woori Bank offers an APR of 8.4% compounded annually. Which bank would you select for your investment?

2. You just won a Million Dollar lottery and you can choose one of the following two options to claim your winning. If you choose Option A, you will receive $40,000 every year for 25 years (40,000 x 25 = $1,000,000 hence the name), with the first payment to occur one year from today. But you may also choose Option B, in which case you will receive a single payment of $600,000 today. The applicable tax rate for the annual payment from Option A is 15%, while the applicable tax rate for the single payment from Option B is 18%. The appropriate discount rate for both options is 5%. Which option is better from a strictly financial standpoint?

3. You just purchased a coupon bond with a 7% coupon rate, 3 years remaining until its maturity, a 6% YTM, and a par value of $1,000. The bond pays its coupon every six months. What price did you pay for this bond?

4. Two years ago, you purchased a zero coupon bond with a 5-year time to maturity, a 6% YTM, and a par value of $1,000. The bonds YTM today is 5%. If you sell the bond today, what is the annual rate of return on your investment?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Continuous Time Finance

Authors: Robert C. Merton

1st Edition

0631185089, 978-0631185086

More Books

Students also viewed these Finance questions