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HW-1188 Finance Assignment
1. You have a savings account in which you leave the funds for one year
without adding or withdrawing from the account. What would you rather have: a daily
compounded rate of 0.040%, a weekly compounded rate of 0.325%, a monthly compounded
rate of 1.15%, a quarterly compounded rate of 4.00%, a semi-annually compounded rate of
9%, or an annually compounded rate of 16%?
• What is the EAR of a daily compounded rate of 0.040% ?
• What is the EAR of a weekly compounded rate of 0.325% ?
• What is the EAR of a monthly compounded rate of 1.15% ?
• What is the EAR of a quarterly compounded rate of 4.00% ?
• What is the EAR of a semiannually compounded rate of 9% ?
• What is the EAR of a annually compounded rate of 16% ?
• What periodic rate would you rather have for your savings account ?
2. What is the effective annual rate of a mortgage rate that is advertised at 8.25% (APR)
over the next twenty years and paid with semi-annual payments?
3. Sam Hinds, the dentist is going to remodel the dental reception area and two new workstations. The cost of the equipment for the project is $16,000, and the purchase will be financed with a 9% loan over six years. What will Sam have to pay for this equipment if the loan calls for semiannual payments (2 per year) and weekly payments (52 per year)? Compare the annual cash outflow of the two
payments. Why does the weekly payment plan have less total cash outflow each year?
• What will Sam have to pay for this equipment if the loan calls for semiannual payments?
• What will Sam have to pay for this equipment if the loan calls for weekly payments?
• Why does the weekly payment plan have less total outflow each year?
4. Cooley Landscaping needs to borrow $28,000 for a new
front-end dirt loader. The bank is willing to loan the money at 9% interest for the next 7
years with annual, semiannual, quarterly, or monthly payments. What are the different
payments that Cooley Landscaping could choose for these different payment plans?
• 9% interest for the next 7 years annual payments ?
• 9% interest for the next 7 years semiannual payments?
• 9% interest for the next 7 years quarterly payments?
• 9% interest for the next 7 years monthly payments?
5. Denise has her heart et on being a millionaire. What payment does Denise need to make at the end of each 6 months over the coming 43 years at 9% APR to reach her retirement goal of 1.1 million?
What semi-annually payment does Denise need to make to reach her retirement goal?
6.
Price the bonds from the following table with annual coupon payments.
Par Value Coupon Rate Years to Maturity YTM Price
1000 11 15 11 ?
5000 6 15 5 ?
5000 9 10 10 ?
5000 7 10 7 ?
7.
What is the yield of the following bonds if interest is paid annually?
Par Value Coupon Rate Years to Maturity YTM Price
5000 10% 30 ? 5500
1000 8% 25 ? 700
1000 7% 5 ? 1000
5000 6% 30 ? 3110
8.
What is the yield of the following bonds if interest is paid quarterly?
Par Value Coupon Rate Years to Maturity YTM Price
5000 10% 15 ? 5000
1000 8% 10 ? 1230
1000 12% 25 ? 1400
5000 5% 25 ? 2450
9.
What is the yield of the following bonds if interest is paid monthly?
Par Value Coupon Rate Years to Maturity YTM Price
5000 8% 10 ? 3530
5000 9% 10 ? 4390
1000 11% 30 ? 1090
5000 12% 10 ? 5900
10.
What is the coupon rate of the following bonds?
Par Value Coupon Rate Years to Maturity YTM Price Coupon Frequency
5000 ? 15 9% 4178.39 monthly
1000 ? 5 11% 886.94 semiannual
1000 ? 5 5% 1173.18 annual
5000 ? 20 6% 7900.46 Quarterly
Answer will be sent by email as attachment.
without adding or withdrawing from the account. What would you rather have: a daily
compounded rate of 0.040%, a weekly compounded rate of 0.325%, a monthly compounded
rate of 1.15%, a quarterly compounded rate of 4.00%, a semi-annually compounded rate of
9%, or an annually compounded rate of 16%?
• What is the EAR of a daily compounded rate of 0.040% ?
• What is the EAR of a weekly compounded rate of 0.325% ?
• What is the EAR of a monthly compounded rate of 1.15% ?
• What is the EAR of a quarterly compounded rate of 4.00% ?
• What is the EAR of a semiannually compounded rate of 9% ?
• What is the EAR of a annually compounded rate of 16% ?
• What periodic rate would you rather have for your savings account ?
2. What is the effective annual rate of a mortgage rate that is advertised at 8.25% (APR)
over the next twenty years and paid with semi-annual payments?
3. Sam Hinds, the dentist is going to remodel the dental reception area and two new workstations. The cost of the equipment for the project is $16,000, and the purchase will be financed with a 9% loan over six years. What will Sam have to pay for this equipment if the loan calls for semiannual payments (2 per year) and weekly payments (52 per year)? Compare the annual cash outflow of the two
payments. Why does the weekly payment plan have less total cash outflow each year?
• What will Sam have to pay for this equipment if the loan calls for semiannual payments?
• What will Sam have to pay for this equipment if the loan calls for weekly payments?
• Why does the weekly payment plan have less total outflow each year?
4. Cooley Landscaping needs to borrow $28,000 for a new
front-end dirt loader. The bank is willing to loan the money at 9% interest for the next 7
years with annual, semiannual, quarterly, or monthly payments. What are the different
payments that Cooley Landscaping could choose for these different payment plans?
• 9% interest for the next 7 years annual payments ?
• 9% interest for the next 7 years semiannual payments?
• 9% interest for the next 7 years quarterly payments?
• 9% interest for the next 7 years monthly payments?
5. Denise has her heart et on being a millionaire. What payment does Denise need to make at the end of each 6 months over the coming 43 years at 9% APR to reach her retirement goal of 1.1 million?
What semi-annually payment does Denise need to make to reach her retirement goal?
6.
Price the bonds from the following table with annual coupon payments.
Par Value Coupon Rate Years to Maturity YTM Price
1000 11 15 11 ?
5000 6 15 5 ?
5000 9 10 10 ?
5000 7 10 7 ?
7.
What is the yield of the following bonds if interest is paid annually?
Par Value Coupon Rate Years to Maturity YTM Price
5000 10% 30 ? 5500
1000 8% 25 ? 700
1000 7% 5 ? 1000
5000 6% 30 ? 3110
8.
What is the yield of the following bonds if interest is paid quarterly?
Par Value Coupon Rate Years to Maturity YTM Price
5000 10% 15 ? 5000
1000 8% 10 ? 1230
1000 12% 25 ? 1400
5000 5% 25 ? 2450
9.
What is the yield of the following bonds if interest is paid monthly?
Par Value Coupon Rate Years to Maturity YTM Price
5000 8% 10 ? 3530
5000 9% 10 ? 4390
1000 11% 30 ? 1090
5000 12% 10 ? 5900
10.
What is the coupon rate of the following bonds?
Par Value Coupon Rate Years to Maturity YTM Price Coupon Frequency
5000 ? 15 9% 4178.39 monthly
1000 ? 5 11% 886.94 semiannual
1000 ? 5 5% 1173.18 annual
5000 ? 20 6% 7900.46 Quarterly
Answer will be sent by email as attachment.
