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ololo11 [35]
3 years ago
6

Jane Smith, MD, has had a great year in her pediatrics practice and has cash that she wants to invest. Her financial adviser sug

gests she buy a seven-year, $1,500 par value bond with an annual coupon rate of 10 percent and three years remaining to maturity. Dr. Smith decides to explore her options. She discovers that new, similarly risky bonds have an average annual rate of return of 12 percent. Bank certificates of deposit are returning 5 percent annually on average while a mutual fund investing in high-risk-growth stocks has an average annual rate of return of 20 percent. If Dr. Smith follows her financial adviser’s advice, what is the maximum amount she should pay for the bond? Explain your answer
Business
1 answer:
Arlecino [84]3 years ago
3 0

Answer: $1427.95

Explanation:

If Dr. Smith follows her financial adviser’s advice, the maximum amount that she should pay for the bond will be calculated thus:

This question can be solved using Excel.

Face value = $1500

Coupon rate = 10%

Years left = 3

Coupon = 10% × $1500 = $150

Yield to maturity = 12%

The bond price will be:

= PV(12%,3,-150,-1500)

= PV(0.12,3,-150,-1500)

= 1427.95

The bond price is $1427.95

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Answer:

Statement A

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The 2 statements are:

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B: The firm Delta Insurers typically denies claims within 120 days after it receives proof of loss statements

The explanation for this is:

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8 0
3 years ago
An economist makes an assumption that each additional year of education causes future wages to rise by 7 percent. In this​ model
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Answer:

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Explanation:

Giving the following information:

Each additional year of education causes future wages to rise by 7 percent.

A person with 12 years of education makes ​$21 000 per​ year.

A person with 4 years of education=$?

We will use the present value formula to calculate the wage in year 0. Then with the final value formula calculate the year 4 wage.

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PV= 21000/(1,07^12)= $9324. 2511

Final Value= PV*(1+r)^t

Final Value year 4= 9324.2511*(1,07^4)= $12222.19

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