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Lelu [443]
2 years ago
8

Assume that a $1,000,000 par value, semiannual coupon US Treasury note with four years to maturity has a coupon rate of 4%. The

yield to maturity (YTM) of the bond is 7.70%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: $874,669.10 $551,041.53 $743,468.74 $1,049,602.92
Business
1 answer:
ExtremeBDS [4]2 years ago
6 0

Answer:

Explanation:

the present value of the future cash flows is the the value of the bond we calculate the present value as follows

Cash flow  4% = 40000 per year for 4 year p.v using annuity

Cash flow = 1000000 at year four present value using compound formula

Present value at yield rate 7.7%

Cash flow Discount Factor Present Value

1000000 0.743253883           743253.8831

40000         3.334365155           133374.6062

                                            876628.4893

Compound = 1000000/(1+7.7%)^4

Annuity       = 40000*  (1-(1+7.7%)^-4) / 7.7%

You might be interested in
One year ago Lerner and Luckmann Co. issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000. Today,
denis-greek [22]

Answer:

e) $1,191.79

Explanation:

In order to find the price of a bond we need to know the future value of the bond, the interest rate on the bonds, the coupon payments and the time to maturity. In this case the future value of the bond is 1,000, the interest rate is 5.5%, the time to maturity is 14 years and the coupon payments are 7.5% which are (0.075*1,000)=75. Now we input all these values in a financial calculator and compute the present value/price.

FV= 1,000

I=5.5

N=14

PMT= 75

Compute PV=1,191

4 0
3 years ago
An investment will pay $202,000 at the end of next year for an investment of $182,000 at the start of the year. If the market in
lapo4ka [179]

Answer:

The first investment is more profitable than the general market interest rate.

Explanation:

Giving the following information:

An investment will pay $202,000 at the end of next year for an investment of $182,000 at the start of the year. The market interest rate is 7.9% over the same period.

<u>To compare both options, we need to calculate the final value of investing the $182,000 in other investment that pays a 7.9% interest rate.</u>

We need to use the following formula:

FV= PV*(1+i)^n

FV= 182,000*(1.079)= $196,378

The first investment is more profitable than the general market interest rate.

7 0
2 years ago
Rupesh wants to buy a new BMW priced at $54,000. He makes a down payment of 20% of the original price. He also trades-in his old
AlladinOne [14]

Answer:

The approximate payment at the end of every month will be $603.22.

Explanation:

Since the payment is going to be made at the end of every month, this can be calculated using the formula for calculating the present value of an ordinary annuity as follows:

PV = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (1)

Where;

PV = Present value or the balance = Price of BMW - Down payment - Old car sales amount = $54,000 - ($54,000 * 20%) - $10,000 = $33,200

P = Monthly payment = ?

r = Monthly interest rate = Annual interest rate / 12 = 3.45% / 12 = 0.0345 /

12 = 0.002875

n = number of months = 60

Substitute the values into equation (1) and solve for P, we have:

$33,200 = P * ((1 - (1 / (1 + 0.002875))^60) / 0.002875)

$33,200 = P * 55.0377058660197

P = $33,200 / 55.0377058660197

P = $603.22

Therefore, the approximate payment at the end of every month will be $603.22.

5 0
2 years ago
Sage Hill Inc. Issues $254,000, 10-year, 10% bonds at 97. Prepare the journal entry to record the sale of these bonds on March 1
Mamont248 [21]

To record final annual interest and bond repayment:

2017

Mar 1

Bonds interest expense       $25,400

Bonds payable                      $254,000

          Cash                                                  $279,000

On March 1, 1997, the date of issuance, the entry is:

1997

Mar 1

Cash                                        $254,000

          Bonds payable                                  $254,000

On each March 1 for 10 years, beginning March 1, 1997 (ending March 1, 2017), the entry would be (Remember, calculate interest as Principal x Interest Rate x Time)

Mar 1

Bond Interest Expense ($100,000 x 12% x 1)          $25,400

          Cash                                                                                  $25,400


8 0
3 years ago
Michigan Mattress Company is considering the purchase of land and the construction of a new plant. The land, which would be boug
swat32

Answer:

6 years

Explanation:

The Payback period calculates how much it takes the amount invested in a project to be recovered from the cumulative cash flow.

Total amount invested =  $500,000 +  $100,000 =  $-600,000

Cash inflow in year 2 =  $100,000

Amount recovered in year 2 = $-600,000 + 100,000 = $-500,000

Cash inflow in year 3 =  $100,000 × 1.1 = 110,000

Amount recovered in year 3=$-500,000 + 110,000 = $-390,000

Cash inflow in year 4= $121,000

Amount recovered in year 4 = $-390,000 + $121,000 = $-269,000

Cash inflow in year 5= $133,100

Amount recovered in year 5 = $-269,000 + $133,100 = $-135,900

Cash inflow in year 6 = $146,410

Amount recovered in year 6 = $146,410 $-135,900 = $10,510

The amount is recovered In 5.93 years

I hope my answer helps you

8 0
3 years ago
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