Question

# M16 - Larry deposits \$100,000 dollars in a Money Market Account with Charter One Bank. The...

M16 - Larry deposits \$100,000 dollars in a Money Market Account with Charter One Bank. The bank is offering to pay 3.08% interest for five (5) years. What will the balance in Larry's account be in five (5) years. (Note; Compounded daily)

M17 - A bond with a \$10,000 par value has a 4.25% coupon rate. It will mature in five (5) years and coupon payments are made annually. The current price is \$9,853.72. Calculate the bonds yield to maturity - YTM.

Answer to Question M16:

Amount deposited = \$100,000

Annual interest rate = 3.08%
Daily interest rate = 3.08% / 365
Daily interest rate = 0.0084384%

Time period = 5 years or 1,825 days

Future value = Amount deposited * (1 + Daily interest rate)^Time period
Future value = \$100,000 * (1 + 0.000084384)^1,825
Future value = \$100,000 * 1.1664842
Future value = \$116,648.42

Balance in Larry’s account in five years will be \$116,648.42

Answer to Question M17:

Par Value = \$10,000
Current Price = \$9,853.72

Annual Coupon Rate = 4.25%
Annual Coupon = 4.25% * \$10,000
Annual Coupon = \$425

Time to Maturity = 5 years

Let Annual YTM be i%

\$9,853.72 = \$425 * PVIFA(i%, 5) + \$10,000 * PVIF(i%, 5)

Using financial calculator:
N = 5
PV = -9853.72
PMT = 425
FV = 10000

I = 4.58%

Yield to Maturity = 4.58%