If the company deposits $2 million in a bank account that pays 6 interest annually, how much will be in the account after 5 years Present Value What is the present value of a security that will pay $29,000 in 20 years if securities of equal risk pay 5 annually Required Interest Rates The company owner has said she will retire in 19 years She currently has $350,000 saved and thinks she will need $800,000 at retirement What annual interest rate must she earn to reach that goal, assuming she does not save any additional funds Future Value of an Annuity Find the future values of these ordinary annuities Compounding occurs once a year $500 per year for 8 years at 14 $250 per year for 4 years at 7 $700 per year for 4 years at 0 Present Value of an Annuity Find the present values of these ordinary annuities Discounting occurs once a year $600 per year for 12 years at 8 $300 per year for 6 years at 4 $500 per year for 6 years at 0 Bond Valuation The company has two bonds in their investment portfolio, Bond C and Bond Z Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8 2 Bond C pays an 11 5 annual coupon, while Bond Z is a zero coupon bond Assuming that the yield to maturity of each bond remains at 8 2 over the next 4 years, calculate the price of the bonds at each of the following years to maturity Explain any observed differences from the pricing calculations of the two bonds Years to Maturity Price of Bond C Price of Bond Z 4 3 2 1 0 Yield to Maturity and Yield to Call The owner is interested in investing some retained earnings in corporate bonds She is considering the following Bond A has a 7 annual coupon, matures in 12 years, and has a $1,000 face value Bond B has a 9 annual coupon, matures in 12 years, and has a $1,000 face value Bond C has an 11 annual coupon, matures in 12 years, and has a $1,000 face value Each bond has a yield to maturity of 9 a Before calculating the prices of the bonds, identify whether each bond is trading at a premium, at a discount, or at par b Calculate the price of each of the three bonds c Calculate the current yield for each of the three bonds

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Apr 24, 2024

If the company deposits $2 million in a bank account that pays 6% interest annually, how much will be in the account after 5 years?

If the company deposits $2 million in a bank account that pays 6% interest annually, how much will be in the account after 5 years?
Present Value: What is the present value of a security that will pay $29,000 in 20 years if securities of equal risk pay 5% annually?
Required Interest Rates: The company owner has said she will retire in 19 years. She currently has $350,000 saved and thinks she will need $800,000 at retirement. What annual interest rate must she earn to reach that goal, assuming she does not save any additional funds?
Future Value of an Annuity: Find the future values of these ordinary annuities. Compounding occurs once a year.
- $500 per year for 8 years at 14%
- $250 per year for 4 years at 7%
- $700 per year for 4 years at 0%
Present Value of an Annuity: Find the present values of these ordinary annuities. Discounting occurs once a year.
- $600 per year for 12 years at 8%
- $300 per year for 6 years at 4%
- $500 per year for 6 years at 0%
Bond Valuation: The company has two bonds in their investment portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8.2%. Bond C pays an 11.5% annual coupon, while Bond Z is a zero-coupon bond. Assuming that the yield to maturity of each bond remains at 8.2% over the next 4 years, calculate the price of the bonds at each of the following years to maturity. Explain any observed differences from the pricing calculations of the two bonds.

Years to Maturity	Price of Bond C	Price of Bond Z
4
3
2
1
0

Yield to Maturity and Yield to Call: The owner is interested in investing some retained earnings in corporate bonds. She is considering the following:
- Bond A has a 7% annual coupon, matures in 12 years, and has a $1,000 face value.
- Bond B has a 9% annual coupon, matures in 12 years, and has a $1,000 face value.
- Bond C has an 11% annual coupon, matures in 12 years, and has a $1,000 face value.

Each bond has a yield to maturity of 9%.

a. Before calculating the prices of the bonds, identify whether each bond is trading at a premium, at a discount, or at par. b. Calculate the price of each of the three bonds. c. Calculate the current yield for each of the three bonds.