Question
Can someone help me, im trying to double check my answer on the problems listed below... Question 1: If the pension plan invests $95 million
Can someone help me, im trying to double check my answer on the problems listed below...
Question 1:If the pension plan invests $95 million today in 10-year US Treasury bonds (riskless investment with guaranteed return) at an interest rate of 3.5 percent a year, how much will it have by the end of year 10?
Question 2:If the pension plan needs to accumulate $14 million in 13 years, how much must it invest today in an asset that pays an annual interest rate of 4 percent?
Question 3:How many years will it take for $197 million to grow to be $554 million if it is invested in an account with a quoted annual interest rate of 5 percent with monthly compounding of interest?
Question 4:The pension plan also invests in physical assets. It is considering the purchase of an office building today with the expectation that the price will rise to $20 million at the end of 10 years. Given the risk of this investment, there should be a yield of 10 percent annually on this investment. The asking price for the lot is $12 million. What is the annual yield (internal rate of return) of the investment if the purchase price is $12 million today and the sale price 10 years later is $20 million? Should the pension plan buy the office building given its required rate of return?
Question 5:The pension plan is also considering investing $70 million of its cash today at a 3.5 percent annual interest for five years with a commercial bank. The bank in return will pay an annuity due at the beginning of year 6 for the next 15 years. How much will the annual payments be from years 6 to 21, if the rate at which these payments are discounted is also 3.5 percent?
Question 6:The pension plan is about to take out a 10-year fixed-rate loan for the purchase of an information management system for its operations. The terms of the loan specify an initial principal balance (the amount borrowed) of $4 million and an APR of 3.75 percent. Payments will be made monthly. What will be the monthly payment? How much of the first payment will be interest, and how much will be principal? Use the Excel PMT function to provide the answers to these questions.
Be sure to show your calculations in Excel.
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