35 Suppose you want to save for a boat down payment in 3 years from now. You sav

Question

35 Suppose you want to save for a boat down payment in 3 years from now. You save $4,200 per year. At the end of each year, you depos it with your broker who thinks you can earn 5.2% interest. How much will you have at the end of year 3? 36.How long will it take for $10,000 to double at 5%, semi-annually.

38. Suppose Pen Protector Corporation of America bonds have 20 years remaining to maturity but are callable in 10 years at $1050. Interest is paid 5% semi-annually; the bonds have a $1,000 par value; and currently sell for $981. Compute the yield to maturity and yield to call for the bonds, and indicate which one you would you expect to get, YTM or YTC?

39. A corporate bond has a 6% annual coupon, $1000 par value, and 25 years left to maturity. If the bond currently sells for a premium of 1120, what is the yield to maturity?

Explanation / Answer

35)

n=3
pmt=4200
r=0.052
=FV(0.052,3,4200)
=$13,266.56

36)FV=20,000
PV=-10,000
rate =0.05/2
=NPER(0.025,0,10000,-20000)
=28.07 semiannual periods or 14.04 years approximately

38)

YTM= =RATE(40,25,-981,1000)=5.1533%

YTC=RATE(20,25,-981,1050)=5.63%

Since YTC is greater the bonds would not be called and one shall receive YTM.

39)  =RATE(25,60,-1120,1000)=5.14%

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