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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 Fall '09
 RaviMateti
 Inflation, Time Value Of Money, Interest, Nominal Interest Rate

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