LSC CUMBERLAND EC202 MICRO>PKG<
21st Edition
ISBN: 9781260586992
Author: McConnell
Publisher: MCG
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Question
Chapter 18, Problem 5RQ
To determine
Present value of a sum of money.
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QUESTION 19
You lend your sister's daughter $2,000 for a year, if at the end of the year she pays you $2,180. The interest rate you are charging her is
O 1.1%.
O 9%.
O 10%.
O 20%.
Theodore D. Kat is applying to his friendly,
neighborhood bank for a mortgage of $200,000. The
bank is quoting 6%. He would like to have a 25-year
amortization period and wants to make payments
monthly. What will Theodore’s payments be?
48
LO3
A coupon bond will make 20 annual coupon payments of $5,000 each and will pay a face value of
$100,000 at the end of the twenty years. Currently this bond is selling for $75,000. What is the yield
to maturity of this bond?
O 5.0 percent
O Lower than 5.0 percent
O Higher than 5.0 percent.
Chapter 18 Solutions
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- Calculate the Present Value of the cash flow diagram below using the regular equation, then using the application of the uniform payment formula. (Obviously, both solutions should yield the same answer.) 0 $100 1 2 Interest Rate = 5% per year. $100 3 4 $100 LO 5 Yearsarrow_forwardHow would we compute the present discounted value of payments of $8,000 received three years in the future and $10,000 received four years in the future? The interest rate is expected to be 5 percent for the next four years. Please choose one: O a. 8,000/((15)3) + 10,000/(1.5)4) O b.8,000/((1.05)3) +10,000/((1.05)4) Oc 8,000/(1.03) + 10,000/(104) O D 8,000/(105) +10,000/((1.05)2)arrow_forwardSuppose that the interest rate at which Joanne can borrow and lend is 10 percent per year, but she can earn $22,000 with a high school degree. Her tuition and books at college cost $6,000 and her living expenses are $15,000 per year. Savings are deposited at the end of the year they are earned and receive (compound) interest at the end of each subsequent year. Similarly, the loans are taken out at the end of the year in which they are needed, and interest does not accrue until the end of the subsequent year. Now that the interest rate has risen, should Joanne go to college or go to work?arrow_forward
- 5. Suppose after you graduate from Algoma University, you find a job that pays you $75,000 a year. Further suppose that you take out a home equity loan of $360,000 for 30 years at an annual interest rate of 3.5 percent, with payments to be made monthly. What will your monthly payments be? If the interest rate increases from 3.5 percent to 5.0 percent, how much will your monthly payments increase? Instead of 30 years, you decide to pay your loan in 25 years, what will your monthly payments be if the interest rate remains at 3.5 percent or increases to 5.0 percent. Develop a chart comparing these monthly payments. Show your work.arrow_forwardHow would we compute the present discounted value of payments of $8,000 received three years in the future and $10,000 received four years in the future? The interest rate is expected to be 5 percent for the next four years. Please choose one: O a. 8,000/((1.5)3) + 10,000/((1.5)4) O b. 8,000/((1.05)3) + 10,000/((1.05)4) O c 8,000/(1.03) + 10,000/(104) OD 8,000/(1.05) + 10,000/((1.05)2)arrow_forwardSuppose that you barrow 10,000 AED at 1% compounded interest, the the total amount to pay in five years is O 10,000 AED 10,510 AED 500 AED O 10,400 AEDarrow_forward
- |1| 2. I 3 | ... 4 | 11 5 1 1. 61 3 Once you have defined the words above, draw the following comparisons: 1. How is a fixed interest rate different from a variable interest rate? When can either be an advantage? 2. What is the difference between simple interest and compound interest? Which is more expensive? 3. What would $1000 become in a saving account at 3% per year for 3 years when the interest is not compounded (simple interest)? What would the same amount become after 3 years with the same rate but compounded annually?arrow_forwardSuppose that you obtain a mortgage loan of 100.000 TL. Annual rate of interest is 12% and the maturity of the loan is 8 years. You pay annual installments. Now. suppose that you will pay a lumpsum amount of 20.000 TL at maturity to settle the loan. What would be the periodic payment amount? O 16.504,23 TL O 17.504,23 TL O 18.504,23 TL O 19.504,23 TL O Diğer:arrow_forwardWhat is the present value of a payment of $5,000 at the end of one year and a second payment of $7,000 at the end of two years if the interest rate is 5 percent? O A. $11,201.84 O B. $11,111.11 O C. $10,985.14 O D. $12,250.32arrow_forward
- 9. In how may months will a loan of P2.M be paid if the monthly payment is P94,146.94? Select the correct response: O 24 22 O 16 O 20arrow_forwardThe estimated current purchasing price of a discount bond with a face value of $2000 and a yield to maturity of 10% is $ your response to the nearest two decimal place) (Round What is the approximate yield to maturity on a discount bond that matures one year from today with a maturity value of $10,600, and the price today is $9283.67? OA. 83% O B. 14.2% O C. 7% O D. 8.3% OE. 9%arrow_forwardEconomics In 54 months time you expect a cash flow of $3 million. Calculate it’s present value (PV) given the 54-month interest rate is currently 4%, with a volatility of 120 basis points (bps). Explain, using equations with properly-defined mathematical notation, how to map this cash flow to vertices at 4 years and 5 years, in such a way that the volatility of the present value of the mapped cash flow remains at 120 bps. Suppose the 4-year rate has a volatility of 110 bps and the 5-year rate has a volatility of 150 bps, and their correlation is 0.9. How much should be mapped to each vertex. Give your answer in PV terms and round your answers to whole $ values.arrow_forward
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