Question

Question 2 | ||||||||

2a) Suppose a risk-free bond promises to pay $2,249.73 in 4 years. If the going risk-free interest rate is 3.5%, how much is the bond worth today? | ||||||||

Nper | ||||||||

Rate | ||||||||

PMT | ||||||||

FV | ||||||||

PV | ||||||||

2b) Suppose you can buy a U.S. Treasury bond which makes no payments until the bond matures 10 years from now, at which time it will pay you $1,000. What interest rate would you earn if you bought this bond for $585.43? | ||||||||

Nper | ||||||||

PMT | ||||||||

PV | ||||||||

FV | ||||||||

Rate = | ||||||||

2c) A company's 2013 earnings per share were $2.75, and its growth rate during the prior 10 years was 16.35% per year. If that growth rate were maintained, how long would it take for EPS to become three (3) times as large? | ||||||||

Rate | ||||||||

PMT | ||||||||

PV | ||||||||

FV | ||||||||

Nper = | years | |||||||

2d) Assume that you plan to buy a condo 5 years from now, and you need to save for a down payment. You plan to save $2,500 per year, with the first payment being made immediately and deposited in a bank that pays 4%. How much will you have after 5 years? | ||||||||

Nper | ||||||||

Rate | ||||||||

PV | ||||||||

PMT | ||||||||

FV |

Answer #1

Q2

Nper = 4

Rate = 3.5%

PMT = 0

PV = Cpmpute PV => PV = 1960.51 Answer

FV = 2249.73

Q2b

NPER = 10

PMT =0

PV = -585.43

FV = 1000

Rate = Compute Rate => Rate = 5.50% Answer

Q2c

Rate = 16.35%

PMT = 0

PV = -2.75

FV = 2.75*3 =8.25

NPER = Compute NPER => NPER = 7.25 Answer

Q2d

NPER =5

Rate = 4%

PV =0

PMT =2500

FV = Compute FV => FV = 14082.44 Answer

Please let me know in case you have any queries and I will be happy to assist you.

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