3. Your grandmother offers to give you money under one of the following scenarios—you get to choose. Use a 6% discount rate. Whi
1 answer:
Answer: c. $100,250 lump sum seven years from now
Explanation:
a. Present value of $8,750 per year for seven years.
This is an annuity so;
Present value = Annuity * Present value interest factor of an annuity, 7 years, 6%
= 8,750 * 5.5824
= $48,846
b. Present value of $50,050 right now is still $50,050.
c. Present value of $100,250 lump sum seven years from now.
= 100,250 / ( 1 + 6%)⁷
= $66,671.9756
= $66,672
<em>Scenario C has the highest present value. </em>
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Answer:
present value of bond = $1042.96
Explanation:
given data
spot rates for six months = 1%
spot rates for one and = 1.1%
spot rates for one and half years = 1.3%
price = $1000
coupon bond = 4.25%
time = 6 month
solution
we get here first price on bond paid that is
coupon paid = $1000 × 4.25 × 0.5 = $21.25
we get here present value of 6 month and 1 year and 1 and half year
present value = ..............1
present value of 6 month = = 20.23
present value of 1 year = = 21.01
present value of 1 year and half year = = 20.97
and
now we get present value of par value in 1 and half year
present value of par value in 1 and half year =
present value of par value in 1 and half year =
present value of par value in 1 and half year = 980.75
so
present value of bond will be as
present value of bond = 20.23 + 21.01 + 20.97 + 980.75
present value of bond = $1042.96