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vv-4 - Chapter 6 Questions 1 FV= 1,000 N= 15 I= 11 Pmt=...

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Chapter 6 Questions 1. FV= 1,000, N= 15, I= 11, Pmt= 90 (1,000 x .09), PV= 856.18 2. FV= 1,000, N= 6 x 2 = 12, I= 7/2, Pmt= 60 (1,000 x .12 = 120/2), PV=1,241.58 Monthly: FV= 1,000, N= 6 x12 = 72, I= 7/12, Pmt= 10 (1,000 x .12 = 120/12), PV= 1,244.39 Quarterly: FV= 1,000, N= 6 x 4 = 24, I= 7/4, Pmt= 30 (1,000 x .12 = 120/4), PV= 1,243.26 Annually: FV= 1,000, N= 6, I= 7, Pmt= 120 (1,000 x .12), PV= 1,238.33 3. FV= 1,000, N= 10, PV= -975, Pmt= 60, I= 6.35 4. FV= 1,000, N= 5 x 2 = 10, PV= -985, Pmt= 30 (1,000 x .06 = 60/2), I= 3.18 (per semi annum) I= 3.18 x 2 = 6.35 annually 5. FV= 1,000, N= 25, PV= -1,225, Pmt= 80, I= 6.21 6. a. FV= 1,000, N= 20, PV= -1,050, Pmt= 100, I= 9.44 b. FV= 1,000, N= 20, I= 10, Pmt= 100, PV= 1,000 c. No, you should not purchase this bond because it is worth $1,000 to you but is selling for $1,050 in the market. 7. a. FV= 1,000, N= 7, I= 11, Pmt= 250, PV= 1,659.71 b. FV= 1,000, N= 7, I= 27, Pmt= 250, PV= 939.83 FV= 1,000, N= 7, I= 7, Pmt= 250, PV= 1,970.07 c. As interest rates rise, the present value of the bond falls. As interest rates fall, the present value of the bond increases. If the required rate of return is greater than the coupon interest rate, the bond sells at a discount. If the required rate of return is less than the coupon interest rate, the bond sells at a premium.
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