Fall 2017 Instructions: Place the letter of the correct answer in the space prov
ID: 2806694 • Letter: F
Question
Fall 2017 Instructions: Place the letter of the correct answer in the space provided. What is the present value of a 5-year annuity due with annual payments of $200 evaluated at a 15 percent interest rate? a. $670.43 b. $771.00 c. $842.91 d. $1,169.56 e. $1,522.64 2. How long will it take to double your money if you can earn 9% annually on your investment? a. 6 years 8 years c. 9 years d. 12 years 3. How often do bondholders holding coupon-paying corporate bonds get interest payments over the life of the bond? a. Once per year b. Twice per year c. Four times per year d. Monthly 4. If you are researching a security's bond rating, such as AAA, A, or BBB, ther trying to determine a bond'sExplanation / Answer
1.
PV of annuity = P*[(1-(1+r)^(-n)) / r]
P - Periodic payment = 200
r - rate per period = 15%
n - number of periods = 5
PV of annuity = 200*((1-(1+0.15)^(-5)) / 0.15) = $670.43
2.
PV = FV/(1+r)^n
1 = 2/(1+0.09)^n
n = 8.04 years = 8years
3.
Corporate bonds pay the coupon semi annually.
- Twice per year
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