Question

Assume you have some money and want to save to amass a given amount at the...

Assume you have some money and want to save to amass a given amount at the end of 5 years. One of the options you have is a 5 year, 10% coupon bond that is currently selling at Par.

Assume that bond is default free. What will determine the total amount of money you will accumulate at the end of year 5 if you buy the bond today?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The bond is selling at par and the coupon rate is 10% which will be received each year . As the bond is risk free thus the amount of money that you will accumulate after 5 year will depend on whether you reinvest the amount received as interest each year or not .

Note : change in interest rate can result in change in price of the bond it can be at discount or premium in between 5 years but in the question we have been asked about the total accumulated value after maturity of bond

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You want to invest some amount of money at a 5% interest rate that will yield...
You want to invest some amount of money at a 5% interest rate that will yield three annual payments of $10,000 at the end of year 1, $10,000 at the end of year 2, and $10,000 at the end of year 3. How much money do you need to invest today to generate these cash flows. On the last day of the year, a piece of equipment was sold for $34,000 cash. The equipment was purchased three years ago for...
You want to invest a sum of money for two years and have two alternatives: Alternative...
You want to invest a sum of money for two years and have two alternatives: Alternative 1: 3-year 5% coupon AAA bond selling at a par. Alternative 2: A AAA bank deposit which pays according to the following rates: 1 year spot rate 4.0% 1 year forward rate one year from now 4.5% 1 year forward rate two years from now 5% Analyse the alternatives to determine which one is the better deal.
You plan to buy a house in 6 years. You want to save money for a...
You plan to buy a house in 6 years. You want to save money for a down payment on the new house. You are able to place $401 every month at the end of the month into a savings account at an annual rate of 14.64 percent, compounded monthly. How much money will be in the amount after you made the last payment?
You are a student in a Masters degree program and you want to save money to...
You are a student in a Masters degree program and you want to save money to pay your final term of study since your benefits will not cover those final term expenses. You intend to take on a holiday side position (over the next two years) to set some money aside for your final full-term and graduation expenses. You expect to be able to save an extra $1,500 at the end of the holiday season at the end of the...
You are currently 30 years old. You intend to retire at age 60, and you want...
You are currently 30 years old. You intend to retire at age 60, and you want to be able to receive a 20-year, $100,000 beginning-of-the-year annuity, with the first payment to be received on your 60th birthday. You would like to save enough money over the next 15 years to achieve your objective; that is, you want to accumulate the necessary funds by your 45th birthday. A. If you expect your investments to earn 12% per year over the next...
if you want to save $50,000 in 5 years for a down payment on a house,...
if you want to save $50,000 in 5 years for a down payment on a house, how much do you need to save each month in order to accumulate this amount? Assume that you will earn 6% annual interest on your investment account.
You plan to buy a house in 11 years. You want to save money for a...
You plan to buy a house in 11 years. You want to save money for a down payment on the new house. You are able to place $286 every month at the end of the month into a savings account at an annual rate of 6.54 percent, compounded monthly. How much money will be in the account after you made the last payment?
The user wants to save money to buy a new car 10 years from today. Have...
The user wants to save money to buy a new car 10 years from today. Have the user input the amount that they can invest at the start of each year and the price of the car that they want to buy. What annual interest rate will they need to earn in order to be able to buy the car 10 years from today? Note: This question is from excel for accounting, so the calculation should be made in an...
You have inherited some money and you want to set some of that money aside for...
You have inherited some money and you want to set some of that money aside for ten years. After ten years, you would like to receive $7600.00 at the end of each 6 months for nine years. If the interest is 6.5% compounded semi-annually, how much of your inheritance must you set aside?
Suppose you want to buy a car of $ 140,000 after 10 years. To buy it,...
Suppose you want to buy a car of $ 140,000 after 10 years. To buy it, you will save equal amount of money from the end of this year. How much do you have to save per year? The annual interest rate is 5% I. $ 9,854.45 II. $ 111,30.64 III. $ 12,696.61 IV. $ 233,743.5
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT