math-1175 unit 4 review[1]

math-1175 unit 4 review[1] - Find the yield rate(j 2 =...

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MATH-1175 UNIT 4 REVIEW 1. A city borrows $2,000,000 to build a sewage treatment plant. The debt requires interest at j 2 = 14%. At the same time a sinking fund earning interest at j 2 = 10% is established in order to repay the loan in 20 years. Find a) the semi-annual expense of the debt. ($156,556.32) b) the book value of the debt at the beginning of the 16th year. ($900,017.18) c) Construct the S.F. schedule for the first 2 years. d) Construct the S.F. schedule for the last 2 years with totals. 2. A $1,000 bond redeemable at 102.5 on July 1, 2002 pays interest at j 2 = 15%. a) Find the purchase price on July 1, 1999 to yield j 2 = 12%. ($1,091.38) b) Construct the premium/discount schedule with the totals. 3. Find the purchase price on April 11, 1995 of a $5,000 bond redeemable at par on July 1, 2001 that pays interest at j 2 = 8%, if a yield rate of j 2 = 12% is required. ($4,225.23) 4. A $2,000 bond paying interest at j 2 = 11%, redeemable in 15 years, is purchased at the market quotation of 94.5.
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Unformatted text preview: Find the yield rate. (j 2 = 11.79%) 5. A $5,000 bond paying interest at j 2 = 10%, redeemable in 5 years, is purchased for $4,900. Find the yield rate. (j 2 =10.52%) 6. A company is offered a contract promising annual returns of $36,000 for 7 years. If accepted, the company must spend $150,000 immediately for plant expansion. Should the company accept the contact if the required rate of return is 12%? ( yes, NPV = $14,295) 7. A business has 2 investment alternatives. The first requires an immediate outlay of $20,000 and offers a return of $70,000 after 7 years. The second requires a $20,000 outlay in return for which $6,500 will be received at the end of each year for the next 8 years. If the required rate of return is 15% effective, which investment offers the best return? ( NPV(1) = +$6,316, NPV(2) = +$9,168*) 8. Find the internal rate of return for each investment alternative from question 7. (IRR(1)=19.60%, IRR(2)=27.99%)...
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This note was uploaded on 10/04/2011 for the course MATH 1175 taught by Professor Jenny during the Spring '10 term at Fanshawe.

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