Question

1. Calculate the number of years it will take for X to save $50,000 assuming she can invest $1250 annually as an annuity due, and she began at $3000. The market interest rate is 8%.

2. What is the yield to maturity on a bond that has a price of $1000 and pays $100 interest annually for 6 years at the end of which it repays the principal of $1000? Is the bond selling at a premium, at par, or a discount? How can you tell?

3. You recently got promoted at your job. You have since decided to buy your dream car and expect that it will cost you $94,000 six years from today. After budgeting your expenses, you decide that you can save $12,000 per year at the beginning of each year. Given a market interest rate of 8%, will you be able to purchase your car at the end of year 6? Would you be able to afford it at the end of year 7, if the overall market rate fell to 11%?

Answer 1

1)

Hence, It will take 15.77 or 16 years to reach goal.