# Finance questions

**sar.de**

There are 4 finance questions below. Would need work shown with answer.

9-4. You are planning to invest $2,500 today for three years at a nominal

interest rate of 9 percent with annual compounding.

a. What would be the future value (FV) of your investment?

b.

b. Now assume that inflation is expected to be 3 percent per year

over the same three-year period. What would be the investmentâ€™s

FV in terms of purchasing power?

c. What would be the investmentâ€™s FV in terms of purchasing

power if inflation occurs at a 9 percent annual rate?

9-15. Assume a bank loan requires an interest payment of $85 per year

and a principal payment of $1,000 at the end of the loanâ€™s eight-year life.

a. At what amount could this loan be sold for to another bank if

loans of similar quality carried an 8.5 percent interest rate?

That is, what would be the present value (PV) of this loan?

b. Now, if interest rates on other similar quality loans are 10

percent, what would be the PV of this loan?

c. What would be the PV of the loan if the interest rate is 8

percent on similar quality loans?

10-6. The Garcia Companyâ€™s bonds have a face value of $1,000, will

mature in ten years, and carry a coupon rate of 16 percent. Assume

interest payments are made semi-annually.

a. Determine the present value of the bondâ€™s cash fl ows if the

required rate of return is 16 percent.

b. How would your answer change if the required rate of return

is 12 percent?

10-7. Judith, Inc., bonds mature in eight years and pay a semi-annual

coupon of $55. The bondâ€™s par value is $1,000.

a. What is their current price if the market interest rate for

bonds of similar quality is 9.2 percent?

b. A change in Fed policy increases market interest rates 0.50

percentage points from their level in part (a). What is the

percentage change in the value of Judith, Inc. bonds from

their value in part (a)?

c. Better profi ts for Judith, Inc. reduces the market interest rate

for its bonds to 9.0 percent. What is the percentage change in

the value of Judith, Inc. bonds from the answer in part (b)?

- 7 years ago
- 20

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- finance_bonds.xlsx

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