PV and Effective Annual Rate

Assignment Help Financial Management

Reference no: EM13870600

Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm and her boss is selling securities that call for 4 payments of $50 (1payment at the end of each of the next 4 years) plus an extra payment of $1,00 at the end of year 4. Your friend says she can get you some of the securities at a cost of $900 each. Your money is now invested in a bank that pays 8% normal (quoted) interest rate but with quartely compounding. You regard the securities as being safe and as liquid as your bank deposit so your required effective annual rate of return on the securities is the same as that on your bank deposit. You must calculate the value of the securities to decide whether they are a good investment. What is their present value to you?

Reference no: EM13870600

Questions Cloud

By how much are customers paying early or late : Heaton Corp. sells on terms that allow customers 45 days to pay for merchandise. Its sales last year were $455,000, and its year-end receivables were $60,000. If its DSO is less than the 45-day credit period, then customers are paying on time. Otherw..

What is its beta : A stock has an expected return of 3%. What is its beta? Assume the risk-free rate is 7% and the expected rate of return on the market is 12%.

Yield to maturity and call with semi annual payments : Thatcher corporation's bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8% coupon rate, paid semi annually. The price of the bonds is $1,100. The bonds are callable in 5 years at a call price of $1,050. What is their yield ..

What rate can you lock-in today through such a hedge : On March 21, you observe that 3-month LIBOR is 4.50%; 6-month LIBOR is 4.65%; June Eurodollar futures are priced at 95.25; and September Eurodollar futures are priced at 95.15. You owe a floating rate interest payment payable in September, but which ..

PV and Effective Annual Rate : Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm and her boss is selling securities that call for 4 payments of $50 (1payment at the end of each of the next 4 years) plus an extra paymen..

How much should you be prepared to pay for the stock : You believe that the Non-stick Gum Factory will pay a dividend of $3 on its common stock next year. Thereafter, you expect dividends to grow at a rate of 2% a year in perpetuity. If you require a return of 12% on your investment, how much should you ..

What would the annual yield to maturity be on the bonds : A few years ago Spider web inc issued with a 11.79 percent annual coupon rate paid semiannually. The bonds have a par value of $1,000 a current price of $702 and will mature in 23 years. What would the annual yield to maturity be on the bonds if you ..

An at- the- money call option with strike : An at- the- money call option with a strike of 50, 24 days left to expiration and a risk free rate of 0.25% is trading at $1.03. Using the Black-Scholes formula, what will be the price of this option one day later, assuming that all other inputs rema..

What is the target stock price in five years : In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1...

User Account

All Pages