Question 33 ?

3 32. You have the chance to buy a promissory note in which you will receive 85 monthly payments of $880, starting a month from now. If you buy the note, what is the total amount you will receive? 3 33. Refer to Problem 32. If you want to earn 8% compounded monthly, what price should you pay for the note? 34. Four years ago you bought a 25-year 8.5% $1,000 bond. The bond pays interest each 6 months. You want to sell the bond. You just received the 8th semiannual interest payment of $42.50 ($1,000 x 4.25% periodic rate = $42.50). Similar bonds are being issued that pay 6% semiannually. What is your bond worth today? 3 3. 34 35 35. Refer to Problem 34. Why is your bond worth more than the $1,000 face value? 36. Some bonds, referred to as zero-coupon bonds, pay no periodic interest; instead the bondholder buys the bond at a discount and receives the maturity value on the maturity date. In effect, interest is received in one lump-sum when the bond matures. Suppose a corporation issues 25- year $1,000 zero coupon bonds. Calculate the price you must pay for one of these bonds based on a prevailing 7% annual rate. 37. You rent an apartment for $850 a month and offer to prepay 12 months' rent. If the landlord can earn 8.4% compounded monthly, what amount should the landlord accept? (Remember, rent is always paid in advance, at the beginning of each month.) 36. 37