QUESTION 5: Time value of money

5.1 You decided to invest R20 000 in a bank account over five years that is paying 5% interest per year. Calculate your interest if interest is compounded annually. Also, how much will you have accumulated if the interest was compounded monthly instead of annually?

5.2 Explain what a zero-coupon bond is and calculate the present value of the following zero-coupon bond with a par value of R100: The bond is to be redeemed in five years time and the interest is compounded semi-annually. The current market rate for such bonds is 8%.