WK3 Homework

WK3 Homework - WEEK 3 HOMEWORK P4-1. A best-selling author...

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1 WEEK 3 HOMEWORK P4-1. A best-selling author decides to cash in on her latest novel by selling the rights to the book’s royalties for the next four years to an investor. Royalty payments arrive once per year, starting one year from now. In the first year the author expects $400,000 in royalties, followed by $300,000, $100,000, and $10,000 in the three subsequent years. If the investor purchasing the rights to royalties requires a return of seven percent per year, what should the investor pay? P = $400,000 + $300,000 + $100,000 + $10,000 = $725,122.13 1.07 1 1.07 2 1.07 3 1.07 4 P4-12. Bennifer Jewelers recently issued ten-year bonds that make annual interest payments of $50. Suppose you purchased one of these bonds at par value when it was issued. Right away market interest rates jumped, and the YTM on your bond rose to six percent. What happened to the price of your bonds? P = 50 + 50 + 50 + 50 + 50 + 50 + 50 + 50 + 50 + 1,050 1.06 1 1.06 2 1.06 3 1.06 4 1.06 5 1.06 6
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This note was uploaded on 08/23/2011 for the course CS 300 taught by Professor Matthewhoward during the Fall '09 term at Park.

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WK3 Homework - WEEK 3 HOMEWORK P4-1. A best-selling author...

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