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Last year, Jimmy graduated from First City University and received USD 5,000 from his father as a graduation gift. Jimmy, , recently heard from a
Last year, Jimmy graduated from First City University and received USD 5,000 from his father as a graduation gift. Jimmy, , recently heard from a friend who earns a profit from investing in the bond market during this pandemic time.
JImmy does not know much about investing or how people actually make money by investing. He asked you to help him in making a wise investment plan.
Required:
- Before investing any money, explain to Jimmy about the risk involved.
- Calculate the expected rate of return Jimmy would receive if he buys bonds in Eplas bond. Eplas bond is a 15-year, USD1,000 par value bond that pays 5.5 percent interest annually. The market price of the bond is USD1,085.
- Determine the value of the bond given Jimmy required rate of return is 7 percent.
- Jimmys father, Mr.Marc is valuing an investment that will pay him USD12,000 the first year, USD14,000 the second year, USD17,000 the third year, USD19,000 the fourth year, USD23,000 the fifth year, and USD29,000 the sixth year (all payments are at the end of each year). Determine the value of the investment to Mr.Marc now if the appropriate annual discount rate is 11%.
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