In March 2018, Daniela Motor Financing (DMF), offered some securities for sale to the public. Under the terms of the deal, DMF promised to repay the owner of one of these securities $5,000 in March 2053, but investors would receive nothing until then. Investors paid DMF $820 for each of these securities; so they gave up $820 in March 2018, for the promise of a $5,000 payment 35 years later. a. Assuming you purchased the bond for $820, what rate of return would you earn if you held the bond for 35 years until it matured with a value $5,000? (Do not round intermediate calculations and enter your answer as a percent, rounded to 2 decimal places, e.g., 32.16.) b. Suppose under the terms of the bond you could redeem the bond in 2028. DMF agreed to pay an annual interest rate of 1.3 percent until that date. How much would the bond be worth at that time? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. In 2028, instead of cashing in the bond for its then current value, you decide to hold the bond until it matures in 2053. What annual rate of return will you earn over the last 25 years? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Rate of return b. Bond value % c. Rate of return %
In March 2018, Daniela Motor Financing (DMF), offered some securities for sale to the public. Under the terms of the deal, DMF promised to repay the owner of one of these securities $5,000 in March 2053, but investors would receive nothing until then. Investors paid DMF $820 for each of these securities; so they gave up $820 in March 2018, for the promise of a $5,000 payment 35 years later. a. Assuming you purchased the bond for $820, what rate of return would you earn if you held the bond for 35 years until it matured with a value $5,000? (Do not round intermediate calculations and enter your answer as a percent, rounded to 2 decimal places, e.g., 32.16.) b. Suppose under the terms of the bond you could redeem the bond in 2028. DMF agreed to pay an annual interest rate of 1.3 percent until that date. How much would the bond be worth at that time? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. In 2028, instead of cashing in the bond for its then current value, you decide to hold the bond until it matures in 2053. What annual rate of return will you earn over the last 25 years? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Rate of return b. Bond value % c. Rate of return %
Chapter11: Property Dispositions
Section: Chapter Questions
Problem 84TA
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Transcribed Image Text:In March 2018, Daniela Motor Financing (DMF), offered some securities for sale to the
public. Under the terms of the deal, DMF promised to repay the owner of one of these
securities $5,000 in March 2053, but investors would receive nothing until then.
Investors paid DMF $820 for each of these securities; so they gave up $820 in March
2018, for the promise of a $5,000 payment 35 years later.
a. Assuming you purchased the bond for $820, what rate of return would you earn if you
held the bond for 35 years until it matured with a value $5,000? (Do not round
intermediate calculations and enter your answer as a percent, rounded to 2
decimal places, e.g., 32.16.)
b. Suppose under the terms of the bond you could redeem the bond in 2028. DMF
agreed to pay an annual interest rate of 1.3 percent until that date. How much would
the bond be worth at that time? (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
c. In 2028, instead of cashing in the bond for its then current value, you decide to hold
the bond until it matures in 2053. What annual rate of return will you earn over the last
25 years? (Do not round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
a. Rate of return
b. Bond value
c. Rate of return
%
%
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