Question

Is the face value of a Treasury bill the present value or the future value? If...

  1. Is the face value of a Treasury bill the present value or the future value?
  2. If an investment loses 30% in one year and gains 30% the following year, is there a net change in value? In loan amortization, does the ratio of principal to interest in each equal payment increase or decrease with time?

Homework Answers

Answer #1
  1. The face value of a Treasury bill is the present value or the future value:
  • A bond’s face value refers to how much a bond will be worth on its maturity date. In other words, it’s the value that the bondholder will receive when their investment fully matures (assuming that the issuer doesn’t call the bond or default).
  • The price you pay for a bond may be different from its face value, and will change over the life of the bond, depending on factors like the bond’s time to maturity and the interest rate environment. But the face value does not change
  • The face value of a bond is the starting point for gauging whether or not it’s a good investment for you. Combined with other factors like the coupon rate and time to maturity, an investor can determine how much money a bond will ultimately generate and its value relative to other bonds on the market.
  • With present value, you're thinking about the current value of the money that you're soon to receive; with face value, you're thinking of the money that you're currently receiving as a result of the maturity in its value. Face value is the value of the item immediately, without regard for the future i.e. it is the present value.
  1. An investment loses 30% in one year and gains 30% the following year, is there a net change in value?
  • Determining Percentage Gain or Loss
  • Take the amount that you have gained on the investment and divide it by the amount invested. To calculate the gain, take the price for which you sold the investment and subtract from it the price that you initially paid for it.
  • Now that you have your gain, divide the gain by the original amount of the investment.
  • Finally, multiply your answer by 100 to get the percentage change in your investment.
  • If the percentage turns out to be negative, resulting from the market value being lower than the book value, you have lost on your investment. If the percentage is positive, resulting from market value being greater than book value, you have gained on your investment.
  • Investment percentage gain= (Price soldpurchase price)/ purchase price ×100

Year 1: An investment of Rs. 100 lose 30%= Value 70

Year 2: An investment value of Rs. 70 gains 30%= Value 70+30%*70=91

So, change in value=100-91=9.

  1. In loan amortization, does the ratio of principal to interest in each equal payment increase or decrease with time.
  • An amortized loan payment first pays off the interest expense for the period while the remaining amount reduces the principal. As the interest portion of the payments for an amortization loan decreases, the principal portion increases.
  • Since your interest is calculated on your remaining loan balance, making additional principal payments every month will significantly reduce your interest payments over the life of the loan. Paying down more principal increases the amount of equity and saves on interest before the reset period.
  • Please do upvote if you found the answer useful.
  • Feel free to reach in the comment section in case of any clarification or queries

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