Reference no: EM133112989
Please try to show as much of your work as is feasible and also please round to the second (2nd) decimal after converting your answers into percent terms (whenever you are asked for an answer in % terms).
1. What is the present value of the following perpetuity (PVPerp): a $50,000 payment made one time at the end of each year forever if the interest rate (r) is 6.25% compounded annually?
2. What is the effective annual rate of interest (EFF of EAR) for each of the below? Please round your answer to the 2nd decimal place after converting into percent terms (so your calculator should be set to 4 decimal places).
a. 20 percent APR compounded quarterly.
b. 18 percent APR compounded monthly.
3. Suppose you deposit $25,000 at the end of each year, beginning one year from today, into an account which earns 10 percent interest (compounded annually). If you make a total of 25 annual deposits into your account, how much money will you have in your account after 25 years (or by 2046)? How much will you have earned in interest only (in dollars) over the 25 year period? Note/Hint: This problem deals with the future value of an ordinary annuity, so there are 25 annual payments being made into the account, each earning 10% compounded annually.
4. Assume you want to buy a new car for $35,000 and plan to finance it over 4 years by making 48 equal monthly payments. If the monthly interest rate is 0.5 percent (which means the APR on your auto loan will be 6%), what will be the monthly payment on your new $35,000 car (that is, find C)? Also, what is the finance charge (or total interest paid in dollars) on your 4 year car loan
5. What will be the market price (PV) of a $1,000 face value (FV) bond which was issued with an 8.25% coupon rate (icoupon = 0.0825) under the assumption that the bond makes annual payments. To find your answer, assume the bond has 9 years to maturity (N = 9), and the current market interest (r) rate is 10.5%?
6. How much would an investor expect to pay (PV) for a $1,000 face value (FV) bond having a 14% coupon rate (which means icoupon = 0.14) if the market interest rate (r) has decreased to 7.5%? Assume this bond matures in 2031, which means the bond currently has 10 years until maturity.