1 Montgomery Burns needs 26 million to expand his business H

1.

Montgomery Burns needs $26 million to expand his business. He decides to sell 15-year zero-coupon bonds with a $1,000 face value to finance the expansion. The bonds will be priced to yield 5 percent annually. What is the minimum number of zero-coupon bonds he must sell? Use annual compounding.

27,026

184,895

92,447

26,000

54,052

Gugenheim, Inc. needs to finance the purchase of yet another masterpiece. To this end, the company is selling some bonds that were donated by a wealthy donor. The bonds have a 7.50 percent annual coupon. The yield to maturity is 4.15 percent and the bonds mature in 11 years. What is the market price of a $1,000 face value bond? Assume the next coupon is received in one year.

$651.75

You took out a loan with an effective annual interest rate of 13 percent. What is the equivalent 18-month interest rate on this loan?

$3,537.10

$11,433.34

$11,694.20

$9,232.30

$11,132.53

The Dilbert Co. sells annuities. One such annuity pays $760 per quarter for 30 years. You\'re required return is 6.1 percent annually with quarterly compounding. What is the most you would pay today to purchase this annuity? Assume the first payment would be received at the end of the quarter.

$50,012.67

The Pocatello Pokeys have just hired a new team manager. The contract requires $25,600,000 be paid to the manager after she completes 9 years of service. The team wants to set aside an equal amount of money each year to cover this future payment. If the team earns 8 percent on their investments, how much must the team set aside each year? Assume they set aside the first payment at the end of the year.

$2,048,000.00

$1,980,339.18

$2,256,829.47

$1,985,669.28

$2,050,040.55

A bond has a market price that exceeds its face value. Which of the following must be true?

Solution

No of zero coupon bond = 26 Million /(1000/(1.05^15)) = 54052

Bond price = C * ( 1 - (1+r)^-n)/r + FV/(1+ r)^n = $1291.12

Future value of annuity = P * ((1+r)^n - 1)/r = $11132.53

Present value of annuity = P * (1 - (1+r/4)^-4n)/(r/4) = $41730.49

Yield to maturity is less than coupon rate that\'s why bond is selling at more than its face value.