186 APPLICATIONS OF MONEY TIME RELATIONSHIPS 4-7. A friend of yours just purchas

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186 APPLICATIONS OF MONEY TIME RELATIONSHIPS 4-7. A friend of yours just purchased a s$10,000 bond that was discounted to sell for $7,500. It is a 6% bond with interest payable annually that matures in 7 years. In exactly 3 years, your friend plans to sell the bond at a price that gsives the buyer a 12% interest rate compounded annually. For how much will your friend sell the bond? (4.3) 4-8. On January 1, 1990 your brother bought a used car for $8,200 and he agreed to make a down payment of $1,500 and repay the balance in 36 equal payments with the first payment due February 1 . The interest rate is 13.8%, compounded monthly. During the summer your brother made enough money so that he decided to repay the entire balance due on the car as of September 1. How much did he repay on September 1? (4.3) 4-9. Find the internal rate of return (IRR) in each of these situations: (4.6) $10,000 A $1.400lyear 6 7 Years $10,000 Problem 4-9a b. $6,000 Years $1,200 $1,400 f- $1,600 S1,800 Problem 4-9b c. You purchased a used car for $4,200. After you make a $1,000 down payment on the car, the salesperson looks in her Interest Calculations Made Simple handbook and

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Bond Price             10,000 Annual Coupons 6% Annual Coupons =10000*6%                   600 Years till Maturity                        4 Present value of all future payments Year Cash Flow PV factor @ 12% Present value 1                   600 0.892857143                535.71 2                   600 0.797193878                478.32 3                   600 0.711780248                427.07 4                   600 0.635518078                381.31 4             10,000 0.635518078            6,355.18 Total of Present Values            8,177.59 So the bond will be sold for 8,177.59

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