Question

1.) The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $30,000 per year forever. If the required return on this investment is 4.3 percent, how much will you pay for the policy? (Hint: Find PV of perpetuity)

2.) Find the EAR in each of the following cases:

a. APR 9% with quarterly compounding

b. APR 18% with monthly compounding

c. APR 14% with semi-annual compounding

3.) Find the APR, or stated rate, in each of the following cases:

a. EAR 11.5%, semi-annual compounding

b. EAR 12% with quarterly compounding

4.) Consider a 3-year bond with a face value of $1,000 that has a coupon rate of 7%, with semi-annual payments.

a. What is the dollar amount of each coupon from this bond?

b. How many times of coupon payments will be made to the maturity?

SHOW HOW YOU GOT ANSWERS PLEASE!

Answer #1

Answer to Question 1:

Present Value of Perpetuity = Annual Payment / Required
Return

Present Value of Perpetuity = $30,000 / 0.043

Present Value of Perpetuity = $697,674.42

Answer to Question 2:

EAR = [1 + (APR/n)]^n - 1, where n is number of compounding per year

Answer a.

EAR = [1 + (APR/n)]^n - 1

EAR = [1 + (0.09/4)]^4 - 1

EAR = 1.0225^4 - 1

EAR = 1.0931 - 1

EAR = 0.0931 or 9.31%

Answer b.

EAR = [1 + (APR/n)]^n - 1

EAR = [1 + (0.18/12)]^12 - 1

EAR = 1.015^12 - 1

EAR = 1.1956 - 1

EAR = 0.1956 or 19.56%

Answer c.

EAR = [1 + (APR/n)]^n - 1

EAR = [1 + (0.14/2)]^2 - 1

EAR = 1.07^2 - 1

EAR = 1.1449 - 1

EAR = 0.1449 or 14.49%

6.3 The Maybe Pay Life Insurance Co. is trying to sell you an
investment policy that will pay you and your heirs $35,000 per year
forever. (1) If the required return on this investment is 4.7
percent, how much will you pay for the policy? (2) Now suppose a
sales associate told you the policy costs $800,000. At what
interest rate would this be a fair deal?
6.4 What happens to the future value of a perpetuity if interest
rates...

Curly’s Life Insurance Co. is trying to sell you an investment
policy that will pay you and your heirs $28,000 per year forever.
Assume the required return on this investment is 7.6 percent.
How much will you pay for the policy? (Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
Policy value today
$

Curly’s Life Insurance Co. is trying to sell you an investment
policy that will pay you and your heirs $37,000 per year forever. A
representative for Curly’s tells you the policy costs $620,000. At
what interest rate would this be a fair deal? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.) Interest rate
______________

1)please show with excel
You buy an annuity which will pay you, and your heirs, $12,000 a
year forever. What is the value of this perpetuity today at a 7%
discount rate?
200,000.00
222,222.22
120,000.00
171,231.00
171,428.57
2)please show how with excel
You make annual payments on a 10 year $21,000 loan
with 6% annual interest rate. What is the
principle portion of your 3rd payment?
1,065.45
2,475.38
196.82
2,852.53
1,790.15

a. The NewLife Insurance Company is offering an insurance policy
that will give you and your offspring $18,000 per year forever. If
you require 6% return on investment the how much would you have to
pay for the policy?
b. If in part a. above the cost of the policy was 360,000 what
would you expect the interest rate to be for this to be a fail
deal?
c. You’re considering to get a loan. Bank A charges 15% annually...

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7 years (the first payment will be made at the end of year 1) plus
$2,900 at the end of year 7. If the appropriate discount rate is
5%, assume annual compounding, what is the investment worth to you
today?
2. You are offered an investment that will pay $100 annually for
7 years (the first payment will be made at the end of year 1) plus
$2,900...

You've been offered an investment opportunity that will pay
you $10,000 in three years. It is somewhat risky, so you would only
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investment today?
· are you trying to find a PV or FV?
· show your calculations using the formula
· show your calculations using the keystrokes for your
financial calculator (state which financial calculator...

You've been offered an investment opportunity that will pay you
$10,000 in three years. It is somewhat risky, so you would only
take on this investment if you earned a 20% annual return with
annual compounding. What is the most that you would pay for this
investment today?
are you trying to find a PV or FV?
show your calculations using the formula
show your calculations using the keystrokes for your financial
calculator (state which financial calculator you are using)...

You are evaluating an investment that will pay you $5,000 in two
years and $6,000 in four years. If your required return is 8%p.a.
compounded annually, how much is this investment worth?
$9,430.73
$8,696.87
$8,085.33
$10,185.19
Which of the following is NOT a characteristic of equity?
There is no maturity date.
Shareholders are paid last and receive whatever is left after
paying operating expenses and debt holders.
Dividend payments are fixed and do not change year to year.
Dividend payments...

Rogff Co. 's 13-year bond have an annual coupon rate
of 7.1%. Each bond has a face value of R1128 and makes semi-annual
interest payments. If you require an 10.9% nominal yield to
maturity on this investment.
What is the maximum price you should be willing to pay
for the bond?

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