Question

Jonathan has a debt of $3000 that needs to be repaid with 3 annual equal principal...

Jonathan has a debt of $3000 that needs to be repaid with 3 annual equal principal payments with interest on the outstanding balance. The debt has an annual effective interest rate of 8%. In order to match his payment obligations exactly, Jonathan decides to purchase the following zero coupon bonds:

Time to Maturity Par Value   
1 year $1,000
2 years $800
3 years $900

Calculate the number of units of the 3-year bond Jonathan should buy, assuming fractional purchase is possible

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

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
Financial Math: A 20-year loan is being repaid by annual payments of 2000, 2500, 3000, 3500,...
Financial Math: A 20-year loan is being repaid by annual payments of 2000, 2500, 3000, 3500, ... at end of each year. If the present value of the seventh and eighth payments are equal. (a) Find the annual effective interest rate. (b) Find the principal and interest paid in the third annual payment. Please show algebraic work not just excel.
A judge has ordered those meddling kids at Mystery, Inc. to pay $6000 one year from...
A judge has ordered those meddling kids at Mystery, Inc. to pay $6000 one year from today and $9500 two years from today. To match the obligations, the Mystery, Inc. crew plans to purchase bonds today. The following bonds are available for purchase today: \bullet One-year zero-coupon bonds with 8% yield \bullet Two-year 4% par-value bond with annual coupons and 7% yield Find the total purchase price of the bonds today to exactly match the obligations: P = $ (3...
An investor borrows an amount at an annual effective interest rate of 5% and will repay...
An investor borrows an amount at an annual effective interest rate of 5% and will repay all interest and principal in a lump sum at the end of 20 years. She uses the amount borrowed to purchase a 10,000 par value 20-year bond with 8% semiannual coupons bought to yield 6% convertible semiannually. All coupon payments are reinvested at a nominal rate of 6% convertible semiannually. Calculate the net gain to the investor at the end of 20 years after...
A company has liabilities of $1800 and $2150 due at the end of years 1 and...
A company has liabilities of $1800 and $2150 due at the end of years 1 and 2 respectively. The only investments available are 1-year 5% annual coupon bonds and 2-year 6% annual coupon bonds and both redeemable at par. How much of each bond (in terms of maturity values) should the company buy in order to exactly (absolutely) match the assets and liabilities.
Problem 1 - Amortizing a Loan Jason takes out a loan L of 3000 dollars to...
Problem 1 - Amortizing a Loan Jason takes out a loan L of 3000 dollars to buy a car at an annual effective rate of interest of 6%. He repays the loan by making annual payments at the end of each year for 10 years. a) The amount of Jason's annual payment is R=______ b) The amount of interest Jason paid in the 1st payment is I1=iL_________ c) The amount of principal repaid in the 1st payment is P1=R−I1_______ d)...
3. Avicorp has a $12.7 million debt issue​ outstanding, with a 6.2% coupon rate. The debt...
3. Avicorp has a $12.7 million debt issue​ outstanding, with a 6.2% coupon rate. The debt has​ semi-annual coupons, the next coupon is due in six​ months, and the debt matures in five years. It is currently priced at 96% of par value. a. What is​ Avicorp's pre-tax cost of​ debt? Note: Compute the effective annual return. b. If Avicorp faces a 40% tax​ rate, what is its​ after-tax cost of​ debt? Note: Assume that the firm will always be...
Q2) An engineer borrowed $3000 from the bank, payable in six equal end-of-year payments at 8%....
Q2) An engineer borrowed $3000 from the bank, payable in six equal end-of-year payments at 8%. The bank agreed to reduce the interest on the loan if interest rates declined in the United States before the loan was fully repaid. At the end of 3 years, at the time of the third payment, the bank agreed to reduce the interest rate from 8% to 7% on the remaining debt. What was the amount of the equal annual end-of-year payments for...
Paulo borrowed $15,000 at a 14% annual rate of interest to be repaid over 3 years....
Paulo borrowed $15,000 at a 14% annual rate of interest to be repaid over 3 years. The loan is amortized into three equal, annual, end-of-year payments. a) Calculate the annual, end-of-year loan payment. b) Prepare a loan amortization schedule showing the interest and principal breakdown of each of the three loan payments. c) Explain why the interest portion of each payment declines with the passage of time.
?Joan Messineo borrowed $16,000at a15%annual rate of interest to be repaid over 3 years. The loan...
?Joan Messineo borrowed $16,000at a15%annual rate of interest to be repaid over 3 years. The loan is amortized into three? equal, annual,? end-of-year paymen a.??Calculate the? annual, end-of-year loan payment. b.??Prepare a loan amortization schedule showing the interest and principal breadown of each of the three loan payments. c. Explain why the interest portion of each payment declines with the passage of time. ?Show calculations
1.A bond has the following terms: Principal amount $1,000 Annual Interest rate $75 starting 3 years...
1.A bond has the following terms: Principal amount $1,000 Annual Interest rate $75 starting 3 years have passed (that is in year 4) Maturity 10 years Callable @ $1,075 (that is face value + one year’s interest) a) Why do you believe that the terms were constructed as specified? b) What is the bond’s price if comparable debt yields 5 percent? c)What is the bond’s current yield? d) Even though interest rates have fallen, why may you not expect the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT