EMBERY MBAA518 2.5 - Problem Set 2

Question 1

5 / 5 pts

Calculate the present value of:

PV Years Interest Rate FV

6 3 (pct) 5200

6209.07

4,366.02

4354.92

Question 2

5 / 5 pts

Calculate the EAR given the following:

Stated Rate (APR, pct) Compounding Period EAR

6 monthly ?

6.17%

5.84%

6.15%

Question 3

5 / 5 pts

FASM Bank has designed a security that will pay a dividend of $10.00 in perpetuity. The dividend will be paid semi-annually and the initial dividend will be paid one half year from today. What is the price of the security if the stated annual interest rate is 5.5 percent, compounded semi-annually?

$181.82

$363.64

$1090.91

Question 4

10 / 10 pts

You have just been offered a job. Your base salary will be $75,000 per year and the first year’s annual salary will be received one year from the day you start working. You receive a bonus immediately of $12,500. Your salary will grow 4 percent per year and you will receive a bonus of 10 percent of your salary. You expect to work 30 years. Your discount rate is 10 percent. What is the present value of your offer?

$1,130,786.31

$1,131,922.67

$1,135,484.47

Question 5

10 / 10 pts

A European bond has a par value of 1000 Euros, a coupon rate of 4.5 percent and a yield to maturity of 5.2 percent. The bond has 19 years to maturity. Coupons are made annually. What is the value of the bond?

968.39

916.77

948.38

Question 6

0 / 10 pts

ABC Inc. has 7.0 percent coupon bonds on the market with 9 years to maturity. The bonds make semi-annual payments and currently sell for 110 percent of par. What is the YTM?

5.56%

6.36%

The bond holder will receive the par value plus the coupon for the last payment, not the current price plus the coupon payment.