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Homework answers / question archive / 2
2. How long will it take for $592,000 to grow to $1,000,000? Assume that the account earns 6%.
3. If you need $495,000 in 26 years, how much do you need today to have this about? Assume that the account earns 8%.
4.D Corporation has a bond outstanding with a coupon rate of 9 percent and a $1000 par value. The bond has 13 years left to maturity. The bond is selling for $1018. What is the yield to maturity for this bond?
2). We can calculate the number of years by using the following formula in excel:-
=nper(rate,pmt,-pv,fv)
Here,
Nper = Number of years
Rate = 6%
Pmt = 0
PV = $592,000
FV = $1,000,000
Substituting the values in formula:
= nper(6%,0,-592000,1000000)
= 9.00 years
3). We can calculate the present value by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Present value
Rate = 8%
Nper = 26 periods
Pmt = 0
FV = $495,000
Substituting the values in formula:
= -pv(8%,26,0,495000)
= $66,924.87
4). We can calculate the yield to maturity by using the following formula in excel:-
=rate(nper,pmt,-pv,fv)
Here,
Rate = Yield to maturity
Nper = 13 periods
Pmt = Coupon payment = $1,000*9% = $90
PV = $1,018
FV = $1,000
Substituting the values in formula:
= rate(13,90,-1018,1000)
= 8.76%
