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Assignment I (Part B) Solutions

# Assignment I (Part B) Solutions - Assignment I(Part B COMM...

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Assignment I (Part B) COMM 308 31. The present value of an ordinary annuity is \$10,000. If it was an annuity due, what would its present value be? (The interest rate is 10%) A. \$10,000 B. \$9,090.91 C. \$11,000 D. The question can’t be answered because the number of payments in the annuity is not given. Solution: Present value of annuity due = Present value of ordinary annuity due X (1 + Interest rate) = 10,000 X (1 + 0.10) = \$11,000 32. A bond with a coupon of 8% pays interest on December 31 and June 30. On October 12, the quoted price was \$1038.42. What was the cash price of the bond?

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Cash price = Quoted price + Accrued interest The number of days between the date of the last dividend payment (June 30) and the day of the quote (October 12) is 31 + 31 + 30 + 12 = 104. Therefore, the accrued interest is 80 X 104/365 = \$22.80 Cash price = 1,038.42 + 22.80 = \$1,061.22
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Assignment I (Part B) Solutions - Assignment I(Part B COMM...

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