Determine the discount rate assuming the present value of $940 at the end of 1year is $865 $9,800 is deposited for 12 years at 5 compounded annually, determine the FV If $2,800 is discounted back 4 years at an interest rate of 8 compounded semiannually, what would be the present value Consider a newlywed who is planning a wedding anniversary gift of a trip to Canada for her husband at the end of 10 years She will have enough to pay for the trip if she invests $4,000 per year until that anniversary and plans to make her first $4,000 investment on their first anniversary Assume her investment earns a 7 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 If you applied for a loan of $10,000 from two different banks, and Bank Y makes an offer to charge interest of 5 compounded monthly and Bank Z offers you 6 semiannual interest due at the end of the year What will be the difference in the Effective Interest Rate charged by the two banks Your grandfather left an inheritance for you of $80,000 However you can only drawdown on the investment as follows Years 1 4 $10,000 each year and Year 5 $40,000 Interest on the fund is 5 What is the present worth of this inheritance H B Limited borrowed $15,000 at a 14 percent annual interest rate to be repaid over four years The loan is amortized into three equal annual endofyear payments Calculate the annual endofyear loan payment 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 is the process of accumulating interest in an investment over time to earn more interest e) The interest earned on both the initial principal and the interest reinvested from prior periods is referred to as A bond matures in 20 years and pays an 8 percent annual coupon The bond has a face value of $1,000 and currently sells for $900 What is the bonds current yield and yield to maturity The face value for Karens Limited bonds is $100,000 and has a 2 percent annual coupon The 2 percent annual coupon bonds matures in 2022, and it is now 2012 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 12 percent How much should Karen sell her bonds today What is the semiannual coupon bonds 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 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 semiannual 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 13 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 If the current interest rate exceeds the bonds coupon rate, the bond will sell at a The value of a bond to increase if there is a an in interest rates A bonds coupon rate is more than the interest rate, therefore the bond is selling at a As interest rate increases the value of a bond will If the bondholders required rate of return equals the coupon interest rate, the bond will sell at A premium bond sells for as maturity approaches The discount bond sells for as maturity approaches A bondholder with a shortterm bond is exposed to interest rate risk than when owing a longterm bond

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Determine the discount rate assuming the present value of $940 at the end of 1year is $865? $9,800 is deposited for 12 years at 5%

Determine the discount rate assuming the present value of $940 at the end of 1year is $865?
$9,800 is deposited for 12 years at 5% compounded annually, determine the FV?
If $2,800 is discounted back 4 years at an interest rate of 8% compounded semiannually, what

would be the present value?
Consider a newlywed who is planning a wedding anniversary gift of a trip to Canada for her husband at the end of 10 years. She will have enough to pay for the trip if she invests $4,000 per year until that anniversary and plans to make her first $4,000 investment on their first anniversary. Assume her investment earns a 7 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
If you applied for a loan of $10,000 from two different banks, and Bank Y makes an offer to charge interest of 5% compounded monthly and Bank Z offers you 6% semiannual interest due at the end of the year. What will be the difference in the Effective Interest Rate charged by the two banks?
Your grandfather left an inheritance for you of $80,000. However you can only drawdown on the investment as follows: Years 1 4 $10,000 each year and Year 5 $40,000

Interest on the fund is 5%. What is the present worth of this inheritance?
H & B Limited borrowed $15,000 at a 14 percent annual interest rate to be repaid over four

years. The loan is amortized into three equal annual endofyear payments. Calculate the annual endofyear loan payment.

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 ___________ is the process of accumulating interest in an investment over time to earn more interest.
e) The interest earned on both the initial principal and the interest reinvested from prior periods is referred to as ______ _______.

A bond matures in 20 years and pays an 8 percent annual coupon. The bond has a face value of $1,000 and currently sells for $900. What is the bonds current yield and yield to maturity?
The face value for Karens Limited bonds is $100,000 and has a 2 percent annual coupon. The 2

percent annual coupon bonds matures in 2022, and it is now 2012. 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 12 percent. How much should Karen sell her bonds today?
What is the semiannual coupon bonds 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.
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 semiannual 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?

13. 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

If the current interest rate exceeds the bonds coupon rate, the bond will sell at a ___________.
The value of a bond to increase if there is a/an ________ in interest rates.
A bonds coupon rate is more than the interest rate, therefore the bond is selling at a

_____________.
As interest rate increases the value of a bond will ______________.
If the bondholders required rate of return equals the coupon interest rate, the bond

will sell at _________.
A premium bond sells for ____________ as maturity approaches.
The discount bond sells for ____________ as maturity approaches.
A bondholder with a shortterm bond is exposed to ___________ interest rate risk than

when owing a longterm bond.