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1) We would like to spend $10,000 per year for 3 years on new restaurant equipment
1) We would like to spend $10,000 per year for 3 years on new restaurant equipment. Assuming we can earn 8% on our investments, how much do we need to have today to be able to afford this spending program? Round your answer to the nearest dollar ($) and show your calculator steps.
2) A $1,000 par value bond could be purchased for $961.63. The bond matures in 6 years and has a coupon rate of 4%. Calculate the yield to maturity to 2 decimal places and show your calculator steps.
3) If you deposit $10,000 in a bank account that pays 10% interest annually, how much will be in your account after 5 years?
4) What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually?
Expert Solution
1) Computation of the present value:-
Present value = Annuity*((1-1/(1+rate)^n)/rate)
= $10,000*((1-1/(1+8%)^3)/8%)
= $10,000*2.57710
= $25,770.97 Or $25,771
2) 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 = 6 periods
Pmt = Coupon payment = $1,000*4% = $40
PV = $961.63
FV = $1,000
Substituting the values in formula:
= rate(6,40,-961.63,1000)
= 4.75%
3) We can calculate the future value by using the following formula in excel:-
=fv(rate,nper,pmt,-pv)
Here,
FV = Future value
Rate = 10%
Nper = 5 periods
Pmt = 0
PV = $10,000
Substituting the values in formula:
= fv(10%,5,0,-10000)
= $16,105.10
4) We can calculate the present value by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Present value
Rate = 7%
Nper = 20 periods
Pmt = $0
FV = $5,000
Substituting the values in formula:
= -pv(7%,20,0,5000)
= $1,292.10
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