Lady U. Altamond Boland, a steampunk enthusiast, acquired S10,000 worth of TopHa
ID: 2547018 • Letter: L
Question
Lady U. Altamond Boland, a steampunk enthusiast, acquired S10,000 worth of TopHatz R"Us bonds a month ago (i.e. $10,000 was the face value which is going to mature in 35 years with 1 5% return every three months (ie nominal interest rate per year is 6%, and Lady Boland is sent a $150 check every quarter). However, comparable securities have seen their interest rate increase to 8% since. Compute the current value of bonds in Lady Boland's possession under the light of the interest rate increase to 8%. Currently, Lady Boland's bonds are valued at(Round to the nearest dollar.)Explanation / Answer
Current value of bonds will be equal to sum of present value of matuarity amount at the end of 35 years and present value of quarterly interest payments of $150.
Relevant interest rate per quarter = 8%/4 quarters = 2% per quarter
No. of periods = 35 years*4 quarters = 140 periods
Present Value of Matuarity amount = Face Value*PVF(2%,140)
= $10,000*0.062514 = $625.14
Present value of quarterly interest payments = $150*PVAF(2%, 140)
= $150*46.8743096 = $7,031.15
Current Value of Lady Boland's bonds = $625.14+$7,031.15 = $7,656.29
Thus current value of bonds is $7,656.
(The present value can be calculated with present value calculator)
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