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?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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If the owners choose to invest in bonds instead, they look at a $136,125.00 bond set to mature in 9 years with a bond rate of 2.00%, payable semi-annually. The market rate is 5.40%, compounded semi-annually. The owners will only purchase the bond if they can afford it with their savings ($123,750.00), and they can get the bond at a discount because they think the market rate will go down, potentially making the bond more valuable in the future. 2. Calculate the purchase price of the bond if it is purchased today (9 years before maturity). 3. Do the owners have enough money to buy their bond? Will they make the purchase?
3. A man is considering to buy a 20-year corporate bond. The bond has a face value of $1,000 and pays 6% interest per year in two semi-annual payments and in addition he will receive $1,000 at the end of 20 years, along with the last interest payment. If the investor believes he should receive 8% annual interest, compounded semi-annually, what will be the amount he is willing to pay for the bond?
3 A) In January 2021 you purchased a $50,000 bond from Walmart with a 3% coupon rate and a 5-year maturity. In December of 2021, you sold this bond in the secondary market for $45,455. What was the yield on the bond that you sold? B) Assume you have obtained a summer internship 20 miles from your house and you are considering purchasing a new car using a car loan. The interest rate for the car loan is currently 3% and your roommate suggested you secure the loan now since interest rates will most definitely increase by the time summer arrives. Do you agree with her, and if so, what factors are you considering?
If you are considering the purchase of a bond that pays $850 per year forever, and the rate of interest you want to earn is 11% per year, how much money should you pay for the bond?
The Central Bank of The Bahamas offers to sell you a bond for $585.43. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $1,000. What interest rate would you earn if you bought this bond for $585.43? What rate would you earn if you could buy the bond for $550? For $600?
My pension plan will pay me $10,500 once a year for a 10-year period. The first payment will come in exactly five years. The pension fund wants to immunize its position. Required: a. What is the duration of its obligation to me? The current interest rate is 5.0% per year. b. If the plan uses 5-year and 20-year zero-coupon bonds to construct the immunized position, how much money ought to be placed in each bond? c. What will be the face value of the holdings in each zero? Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the duration of its obligation to me? The current interest rate is 5% per year. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Duration years
Solve manually using formulas. Show complete solutions. San buys a 10-year bond of face (and redemption) amount of $1000, with 10% annual coupons at a price to yield an annual effective rate of 10%. The coupons are immediately reinvested at an annual effective rate of 8% once received. Immediately after receiving and reinvesting the 4th coupon, San sells the bond to Lee for a price that will yield an annual effective rate of 12% to Lee. Calculate the yield rate that San actually earns on his investment.
By the end of this year you would be 35 years old and you want to plan for your retirement. You wish to retire at the age of 65 and you expect to live 20 years after retirement. Upon retirement you wish to have an annual sum of $50,000 to supplement your social security benefits. Therefore, you opened now your retirement account with 7% annual interest rate. At retirement you liquidate your account and use the funds to buy an investment grade bond which makes $50,000 annual coupon payments based on a 6 % coupon rate, throughout your retirement years. Suppose you think if you were to retire right now you would have needed $50,000 each year to supplement your social security and maintain your desired lifestyle. But because there is on average 3% annual inflation, when you retire in 30 years from now you need more than $50,000 per year to maintain the lifestyle you like. How much annual payment in the retirement account is needed to accumulate the amount needed to purchase the bond…
On January 1 2021, you will purchase a $350,000 house. To pay for the house you will pay 20% down (in Cash) and borrow the remainder under a 30 year mortgage with a contractual interest rate of 3.35% Your market rate of interest, for the risk you pose, is 4.5% Your payments are due at the end of each month with the first payment due 1/31/2021. How much interest (rounded to the nearest dollar) will you repay during the time period of 2022-2025 ((the second through fifth year of the loan))

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