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# Chapter 2 Financial Essay

438 words - 2 pages

Matt Perry
Finance – Baker College
Week 2 Problems

Chapter 4
9)
a) FV: 500 * (((1+.06)^1)-1)/.06) = 530
b) FV: 530 * (((1+.0 ᥄ ᥄ ᥄ 6)^2)-1)/.06) = 561.80
c) PV: 500 * ((1-(1+.06)^-1)/.06) = 471.70
d) PV: 500 * ((1-(1+.06)^-2)/.06) = 445

10) ᥄ ᥄ ᥄
a) FV: 500 * (((1+.06)^10)-1)/.06) = 895.42
b) FV: 500 * (((1+.12)^2)-1)/.12) = 1552.92
c) PV: 500 * ((1-(1+.06)^-10)/.06) = 500
d) PV: 500 * ((1-(1+.12)^-2)/.12) = 279.20
᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄
15)
a) PV = 700, N = 1, FV = -749, PMT = 0 = I = 7%
b) PV = -700, N = 1, FV = 749, PMT = 0 = I = 7%
c) PV = 85000, N = 10, FV = -201229, PMT = ...view middle of the document...

94 | 2500 | 4094.94 | 20905.06 |
2 | 6594.94 | 2090.51 | 4504.43 | 16400.63 |
3 | 6594.94 | 1640.06 | 4954.88 | 11445.75 |
4 | 6594.94 | 1144.58 | 5450.36 | 5995.39 |
5 | 6594.94 | 599.54 | 5995.39 | 0 |
FINAL | 32974.69 | 7974.69 | 25000 | |

b) PV = -50000, N = 5, I = 10% = PMT = 13189.87
c) PV = -50000, N = 10, I = 10% = PMT = 8137.27
The payments are lower, because the borrower has more time to pay the money back. Although they are paying more in interest, they have an additional five years to make prinicipal payments, therefore reducing monthly payments.

Chapter 5
7) FV = 1000, N = 16, I = 4.25% = PV = 1085.80 Interest rate is halved because its semiannual, and N is doubled because it’s semiannual as well.

9)
a)
1) 100 * (1 - ( 1 / (1 + .06) ^ 8 ))/ .06 + 1000 / (1 + .06) ^ 8 = 1248.38
2) 100 * (1 - ( 1 / (1 + .08) ^ 8 ))/ .08 + 1000 / (1 + .08) ^ 8 = 1004.42
3) 100 * (1 - ( 1 / (1 + .12) ^ 8 ))/ .12 + 1000 / (1 + .12) ^ 8 = 900.64
b) The longer term bond has more time to react to interest rate changes

10) PV = 829, N = 5, FV = 1000, I = 9% = ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄
PV = 1104, N = 5, FV = 1000, I = 9% = ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄
Yes, I would pay 829 – 1000 for the bonds, because it’s below par value.

12)
a) PV = 1000, MV = 1100, I = 12, N = 4 = 4.48%
b) PV = 1000, MV = 1100, I = 12, N = 4 = 1.42%
c+ ▦ ▧ ▨
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▦ ▧ ▨ ൹ ൹ ൹ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄ ᥄
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