Question

Question 1

If someone will pay you 100 dollars in 14 years and interest rate is estimated to be 4.3% over those years, what is the estimated value of that cash flow?

Question 2

What is the price of a 13-year bond paying an annual coupon rate of 8.1%, but paying it semiannually, per face (par) value of $1,000 if the annual market rates for these bonds are 11%?

Question 3

What is the effective or equivalent annual rate if the bank pays 4.6 % nominal interest rate but compounds the money daily (use 365 days in a year)?

Answer 1

1)	Present Value	=-pv(rate,nper,pmt,fv)
		= $ 55.47
	Where,
	rate	=		4.30%
	nper	=		14
	pmt	=		0
	fv	=		$     100.00
2)
Price of bond	=-pv(rate,nper,pmt,fv)
		= $ 801.89
Where,
rate	=	11%/2	=	0.055
nper	=	13*2	=	26
pmt	=	1000*8.1%*6/12	=	40.5
fv			=	$ 1,000.00
3)
Effective annual rate	=	((1+(i/n))^n)-1	Where,
	=	((1+(0.046/365))^365)-1	i	=	4.60%
	=	4.71%		n	=	365