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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.
 Spring '08
 Cormier

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