At what rate of return must the insurance company invest this $49,500 in order to make the annual
payments? Use
Appendix D
for an approximate answer, but calculate your final answer using the
financial calculator method.
(Do not round intermediate calculations. Round your final answer
to 2 decimal places.)
Rate of return __________%
11.24%
7.
You wish to retire in 11 years, at which time you want to have accumulated enough money to receive
an annual annuity of $21,000 for 16 years after retirement. During the period before retirement you
can earn 12 percent annually, while after retirement you can earn 14 percent on your money.
What annual contributions to the retirement fund will allow you to receive the $21,000 annuity?
Use
Appendix C
and
Appendix D
for an approximate answer, but calculate your final answer using
the formula and financial calculator methods.
(Do not round intermediate calculations. Round
your final answer to 2 decimal places.)
annual contributions
6369.64

Chapter 10
1.
Midland Oil has $1,000 par value bonds outstanding at 16 percent interest. The bonds will mature in
25 years. Use
Appendix B
and
Appendix D
for an approximate answer but calculate your final
answer using the formula and financial calculator methods.
Compute the current price of the bonds if the present yield to maturity is:
(Do not round
intermediate calculations. Round your final answers to 2 decimal places. Assume interest
payments are annual.)
15% Bond Price 1064.24
14% Bond Price 1137.68
16% Bond Price 999.52
2.
Kilgore Natural Gas has a $1,000 par value bond outstanding that pays 12 percent annual interest.
The current yield to maturity on such bonds in the market is 13 percent. Use
Appendix
B
and
Appendix D
for an approximate answer but calculate your final answer using the formula and
financial calculator methods.
Compute the price of the bonds for these maturity dates:
(Do not round intermediate calculations.
Round your final answers to 2 decimal places. Assume interest payments are annual.)
30 year bond price
925.52
17 year bond price
932.48
3 year
bond price
976.32
Refer to Table 10-1, assume interest rates in the market (yield to maturity) are 14 percent for
20 years on a bond paying 10 percent.
3. a. What is the price of the bond?

4.
Media Bias Inc. issued bonds 10 years ago at $1,000 per bond. These bonds had a 40-year
life when issued and the annual interest payment was then 13 percent. This return was in line
with the required returns by bondholders at that point in time as described below:
Real rate of return
5
%
Inflation premium
4
Risk premium 4
Total return
13
%
Assume that 10 years later, due to good publicity, the risk premium is now 3 percent and is
appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds

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- Spring '17
- Time Value Of Money, Net Present Value, Internal rate of return