Reference no: EM132980079
Question One - How to solve the following question that each question has two parts? Please if possible solve it step by step explaining using the related formula.
a. Suppose you are an investor and you need to have $100,000 in your account at the end of 15 years so you have decided to save a certain amount at the end of each of the next 15 years and deposit it in AIB bank. The bank pays 12 percent interest compounded annually for long-term deposits. How much will you have to save each year to achieve your target of $100,000?
b. Suppose you have inherited $45,000 and wishes to purchase an annuity that will provide you with a steady income over the next 12 years. You have heard that the local savings and loan association is currently paying 10% compound interest on an annual basis. If you were to deposit your funds, what year-end equal-dollar amount would you be able to withdraw annually such that you would have a zero balance after last withdrawal 12 years from now?
Question Two - How to solve the below question which has two part using the related formula and step by step?
a. Suppose you are an active investor and do investments in bonds, stocks and different products of financial intermediaries. If you have plan to do investment in long term deposits of Azizi Bank. How long would it take for your initial investment of $10,000 to grow to $20,000 if you invested it at a compound annual interest rate of 12 percent? Will it be a prudent investment if you check by applying rule of 72.
b. Suppose you have a plan to do investment in bond with a coupon rate of 10% per year but payments are done semi-annually. The face value of this bond is $1000 and has 5 years to maturity with discount rate of 12%. Being an investor your decision totally depends on intrinsic value of bond so how you will calculate intrinsic value of this bond?