rps5a_10

# rps5a_10 - Chapter 5a Recommended End-of-Chapter Problems...

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Chapter 5a Recommended End-of-Chapter Problems and Solutions 1. Brennan Alston deposits \$2000 in a savings account offering 6.25% compounded daily. After 4 years, assuming he makes no further deposits, what will be the balance in his account? The question requests the future value (FV) of a single present value (PV) of \$2000 growing at an annual percentage rate (APR) of 6.25%, compounded daily, for 4 years. Determine a daily rate and the number of compounding periods over the 4 years. Divide the rate by 365; multiply the annual periods by 365. FV = PV(1 + r) n FV = \$2000 (1 + .0625/365) 1461 FV = \$2000 (1.0001712) 1461 = \$2568.43 3. Find the price of a corporate bond maturing in 5 years that has a 5% coupon (annual payments), a \$1,000 face value, and is rated Aa. A local newspaper's financial section reports that the yields on 5 year bonds are: Aaa = 6%, Aa = 7%, and A = 8%. Suppose the boss wants to see it priced two ways. One with r = .07 using an annual clock, and the other with r = .035 using a half-year clock.

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## This note was uploaded on 06/06/2011 for the course FINA 4000 taught by Professor Staff during the Spring '08 term at UGA.

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rps5a_10 - Chapter 5a Recommended End-of-Chapter Problems...

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