An engineer planning for retirement is considering purchasing a savings bond with a face value of $50,000 and a bond interest rate (coupon rate) of 12% per year payable semiannually with a maturity date 10 years from now. The engineer's MARR is 10% per six-month period. (a) Would you recommend that the engineer purchase the bond if the purchase price is $36,000? (b) Suppose the engineer purchases the bond for $36,000 and is offered $36,000 for it five years later. Would you recommend selling the bond?

An engineer planning for retirement is considering purchasing a savings bond with a face value of $50,000 and a bond interest rate (coupon rate) of 12% per year payable semiannually with a maturity date 10 years from now. The engineer's MARR is 10% per six-month period. (a) Would you recommend that the engineer purchase the bond if the purchase price is $36,000? (b) Suppose the engineer purchases the bond for $36,000 and is offered $36,000 for it five years later. Would you recommend selling the bond?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 32P

See similar textbooks

Similar questions

Suppose you are buying your first condo for $300,000, and you will make a $15,000 down payment. You have arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at a 7.2% nominal interest rate, with the first payment due in one month. What will your monthly payments be? a. $1,923.01 b. $2,501.67 c. $2,024.22 d. $2,036.36 e. $1,934.55
You have RM 5,000.00 you want to invest for the next 45 years until retirement. You are offered an investment plan that will pay you 6 percent per year for the next 15 years and 10 percent per year for the last 30 years.a) Explain the time value of money principleb) Identify the underlying assumption of the time value of money principlec) Draw a graph that illustrates the relationship between interest rates and the present value of RM 1,000.00 to be received in one year.d) Suggest how you can minimize the amount of cash you must invest in order to reach your retirement goal.e) Compute the amount you will have at the end of the 45 years.f) Calculate the amount you would have if the investment plan pays 10 percent for the first 15 years and 6 percent per year for the next 30 years.
8) Special Retirement PlanYou set up a retirement plan where you will invest $20,000 per year in an account with a guaranteed rate of return of ? = 0.05. The plan requires that you start investing immediately at year t=0, and make fifteen (15) additional payments of $20,000 in years t=1, t=2, ..., t=10. You make 11 investments in total. a. What will be the value of this stream of investments in year t=50? b. What is the maximum you can withdraw per year over the twenty (20) year period from t=51, t=52, ..., t=70? You have to withdraw the same amount each year. c. What is the maximum that you can withdraw per year forever if you start to make withdrawals in year t=51. You have to withdraw the same amount each year. 19)
Assume that you can invest to earn a stated annual rate of return of 12 percent, but where interest is compounded semiannually. If you make 20 consecutive semiannual deposits of $500 each, with the first deposit being made today, what will your balance be at the end of Year 20? Group of answer choices $52,821.19 $57,900.83 $58,988.19 $62,527.47 $64,131.50
If you deposit OMR 5000 in your account in a bank; if your bank pays 9.05% interest, how much will you get in 15 years? Find future value Select one: a. None of the option b. 18212.41 c. 18833.31 d. 18212.14 e. 18338.13
Case Study Retirement Planning John is a 30-year-old professional planning for his retirement. He wants to assess the financial impact of different investment scenarios. He's considering investing a lump sum amount and wants to compare two options: Option A: Invest R50,000 today for 30 years. Option B: Invest R5,000 per year for 30 years. Required: 4.1 John's expected annual interest rate is 6%. Help John evaluate both investment options using present value (PV) and future value (FV) calculations. Calculate and compare the following for each option: The Future Value (FV) of the investment at the end of 30 years. The Present Value (PV) of the investment (if applicable). 4.2 You plan to buy a house worth R500,000, and you currently have R100,000 saved for this goal. If you can invest your savings at an annual interest rate of 6%, how long will it take for your savings to grow to the required R500,000 for purchasing the house?
Time value of money practice problems. How would you solve these using a financial calculator? What values would you enter for N, I/YR, PV, PMT, and FV ? *assume coporate bonds pay 2x annually and have a FV on $1000 a) Calculate the FV of depositing $4,000 for each of the next 10 years earning 8%.
a) At what annual interest rate would the following have to be invested? i) $500 to grow to $1,948.00 in 12 years ii) $300 to grow to $422.10 in 7 years iii) $50 to grow to $280.20 in 20 years iv) $200 to grow to $497.60 in 5 years b) You are considering invest ing in a security that will pay you $1,000 in 30 years. i) If the appropriate discount rate is 10 percent, what is the present value of this investment? ii) Assume these securities sell for $365, in return for which you receive $1,000 in 30 years. What is the rate of return investors earn on this security if they buy it for $365? USE EXCEL TO WORK THIS OUT AND SHOW THE FORMULA!
You purchase an annuity that will pay you $100 every three months for five years. The first $100 payment will be made as soon as you purchases the investment. If your required rate of return is 9% , how much should you be willing to pay for this investment? Group of answer choices $1,596.82 $1,632.29 $1,759.34 $1,510.46
Travis Wenzel has $2,000 to invest. Usually,he would deposit the money in his savings account,which earns 6% interest compounded monthly. However, he is considering three alternative investmentopportunities.• Option 1. Purchasing a bond for $2,000. Thebond has a face value of $2,000 and pays $100every six months for three years, after which timethe bond matures.• Option 2. Buying and holding a stock that grows11% per year for three years.• Option 3. Making a personal loan of $2,000 to afriend and receiving $150 per year for three years.Determine the equivalent annual cash flows for eachoption, and select the best option
An investor is considering the purchase of a financial instrument that promises to make the following payments: Promised Payment by Issuer $100 $100 $100 $100 $1,100 Years from Now 1 2 3 4 5 This financial instrument is selling for $1,243.83. Assume that the investor wants a 6.25% annual interest rate on this investment. Should the investor purchase this investment? OA. Yes, the financial instrument is attractive O B. No, the financial instrument is unattractive. C. Can't be answered. More information is needed to answer the question D. Indifferent.
1. An engineer paid P 110,000 for a P 100,000 bond that pays P 4,000 per year. In 20 years, the bond will be redeemed for P 105,000. What net rate of interest will the man obtain on his investment?