finance notes

Finance notes - What is the future value of an annuity due yielding 9.6400 APR that pays quarterly payments of \$1,000 for 1 year 1000(1 0.0964/4)4

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You are considering leasing a car that cost \$34,000. The lease will be for 5 years and requires monthly payments of \$485.50. Somewhere on the lease paperwork you notice a statement to the affect that you will be charged an APR of 7.1500%. What kind of annuity is this? Annuity Due How much will the car be worth at the end of the lease At the beginning of the year a \$1,000 bond paying a coupon rate of 7.2600% APR with semiannual payments and 9 years maturity had a YTM of 7.8400%. At the end of the year the bond was selling at par (minus fees and transaction costs). What is the bond’s total yield for the year? Total Yield = EAR(rCPN) + Capital Gains Yield 1) Find EAR(rCPN) = (1 + rCPN/m)m – 1= (1 + 0.0726/2)2 – 1 = 7.3918% 2) Find VB(@t = 0): m=2, T= 9: n = m x T = 18 Cpn = FV(rCpn/m ) = \$1,000(0.0726/2) = \$36.30 P/Y=2, N=18, I/Y=7.84, PMT=36.3, FV=1000; CPT,PV: VB,0 = \$963.0482 3) Find Cap Gains Yld: (VB,1 – VB,0)/VB,0 = (\$1,000.00 -\$963.0482 )/ \$963.0482 = 3.8370% Total Yield = 7.3918% + 3.8370% = 11.2288% You plan to retire on your 65th birthday. You want to withdraw \$100,000.00 each year at the beginning of each year. You plan to live until your 88th birthday and you want your account balance to be \$0 on that day. How much money you must
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This note was uploaded on 04/02/2008 for the course MGT 326 taught by Professor Cormier during the Spring '08 term at New Mexico.

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