1. Bunco Game Finanacial Planner, Inc. promises to triple your money inn 8 years
ID: 2800552 • Letter: 1
Question
1. Bunco Game Finanacial Planner, Inc. promises to triple your money inn 8 years. What rate of return (yield) are they promising?
2. The present value of $500 to be recevied each year for seven years with the first payment to occur in exactly five years at a discount rate of 8 percent is?
3. The present value of $500 to be received a the beginning of each year for seven years at a discount rate of 8 percent is?
4. Trade credit terms of 2/10, net 90 are avaiable. Calculate the cost of trade credit when the payment is made on the net due date using the EAR( also known as APY). Use a 360 day year.
5. A corporate bond with a $1,000 denomination and bearing a 10 percent coupon rate will mature in 10 years. The firm’s beta is 1.2. If current market rate of return is 8 percent for bonds of this nature, what is current theoretical value of the bond (assume annual interest payments)?
Lo ie you in ycers, what rale 2Therr cesent volue of soo to be receised eoch yeac The 'present value-crs co to oesece.ue -The Desn'f . Rot life insurance Co.'s sell eng payment 1 1o,0o0 annually oreverwith the hes o low rati will:ntorbay tie-contr'? Trade-credit . term Eirst iaclon the nek clue ustcn EExplanation / Answer
1.
PV = FV/(1+r)^n
PV - Present value
FV - Future value
r - Interest rate
n - no. of periods
1 = 3/(1+r)^8
r = 0.1472 = 14.72%
2.
PV = 500/(1+0.08)^5 + 500/(1+0.08)^6 + 500/(1+0.08)^7 + 500/(1+0.08)^8 + 500/(1+0.08)^9 + 500/(1+0.08)^10 + 500/(1+0.08)^11 = $1913.42
PV = $1913.42
3.
PV = 500 + 500/(1+0.08)^1 + 500/(1+0.08)^2 + 500/(1+0.08)^3 + 500/(1+0.08)^4 + 500/(1+0.08)^5 + 500/(1+0.08)^6 = $2811.44
PV = $2811.44
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