Unit_2_assignment

# Unit_2_assignment - 1 Question The U.S Treasury offers to...

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1. Question: The U.S. Treasury offers to sell you a bond for \$613.81. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for \$1,000. What interest rate would you earn if you bought this bond at the offer price? Your Answer: 5.91% 6.71% 7.10% 5.59% 5.00% Instructor Explanation: Interest rate on a simple lump sum investment FV = PV (1 + i) n \$1,000 = \$613.81 (1 + i) 10 1.6292 = (1+i) 10 ; take the 1/10 th root of both sides: 1.6292 0.10 = 1 + i 1.0500 = 1 + i .0500 = i or i = 5% On a financial calculator: N 10; PV -613.81; PMT 0; FV 1,000; I/YR ?? I/YR = 5.00% Points Received: (not graded) 2. Question: You want to buy a condo 5 years from now, and you plan to save \$3,000 per year, beginning one year from today. You will deposit the money in an account that pays 6% interest. How much will you have just after you make the 5th deposit, 5 years from now? Your Answer: \$14,764.40 \$13,431.83 \$16,911.28 \$17,843.15 \$15,119.76 Instructor Explanation: FV of an ordinary annuity FVA = PMT * [(1+i) n - 1] / i FVA = \$3,000 * [(1 + .06) 5 – 1] / .06 FVA = \$3,000 * [1.3382 – 1] / .06

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FVA = \$3,000 * .3382/.06 FVA = \$3,000 * 5.6371 = \$16,911.28 On a financial calculator: N 5; I/YR 6; PV 0; PMT -3,000; FV ??; FV = \$16,911.28 Points Received: (not graded) 3. Question: Your father is about to retire, and he wants to buy an annuity that will provide him with \$50,000 of income per year for 20 years, beginning a year from today. The going rate on such annuities is 6%. How much would it cost him to buy such an annuity today? Your
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Unit_2_assignment - 1 Question The U.S Treasury offers to...

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