chapter 4 solutions-1

chapter 4 solutions-1 - 0.75 = $96.41 Option (a) and option...

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Chapter 4 Solutions to Assigned Problems: 1. Future value in 5 years = $100*(1.08) 5 = $146.93 Future value in 10 years = $100*(1.08) 10 = $215.89 Future value in 15 years = $100*(1.08) 15 = $317.22 2. For 20 years: $1*(1.107) 20 = $7.64 For 10 years: $1*(1.107) 10 = $2.76 For 30 years: $1*(1.107) 30 = $21.11 3. 6 months: Present Value = 100/(1.04) 0.5 = $98.06 5 years: Present Value = 100/(1.04) 5 = $82.19 10 years: Present Value = 100/(1.04) 10 = $67.56 4. Future Value for option (a) = $1000*(1.05) 2 *(1.07) 2 = $1262.25 Future Value for option (bi) = $1000*(1.06) 4 = $1262.48 You will choose option (bi) 5. If i =5%, Future Value = $1000*(1.05) 10 = $1628.89 If i =10%, Future Value = $1000*(1.10) 10 = $2593.74 6. If i =5%, Present Value of option (a) = $50/(1.05) 0.5 + $50/(1.05) = $96.41 Present Value of option (bi) = $100/(1.05)
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Unformatted text preview: 0.75 = $96.41 Option (a) and option (b) have the same present value. If i =4%, Present Value of option (a) = $50/(1.04) 0.5 + $50/(1.04) = $97.11 Present Value of option (bi) = $100/(1.04) 0.75 = $97.10 Option (a) has a higher present value. 7. Present Value for 5-year 5 percent coupon bond with face value of $1000 ( i =3%) = $50/(1.03) + $50/(1.03) 2 + $50/(1.03) 3 + $50/(1.03) 4 + $50/(1.03) 5 = $1091.59 Present Value for 5-year 5 percent coupon bond with face value of $1000 ( i =4%) = $50/(1.04) + $50/(1.04) 2 + $50/(1.04) 3 + $50/(1.04) 4 + $50/(1.04) 5 = $1044.52 The present value falls when the interest rate rises to 4 percent. 8. real interest rate = 5% - 3% = 2%...
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