Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
1) An annuity makes payments of 1000 at the beginning of every 7 years over 70 years at an effective annual interest rate of 4%
1) An annuity makes payments of 1000 at the beginning of every 7 years over 70 years at an effective annual interest rate of 4%. Find the present value of this annuity.
2) Assume that today's date is February 15, 2015. Robin Hood Inc. bond is an annual-coupon bond. Par value of the bond is $1,000.
How much you will pay for the bond if you purchased the bond today?
The answer should be calculated to two decimal places.
Company - Robin Hood
Price - 111.364
Coupon Rate - 8.417
Maturity Date - 2-15-2030
Expert Solution
1) Computation of the present value of annuity:-
Effective 7-year Interest rate = (1+EAR)^7 - 1
= (1+4%)^7-1
= 1.3159 - 1
= 31.59%
n = Number of Annuity payments = 70 / 7 = 10 periods
PV of annuity due = Annuity*((1-(1+rate)^-n)/rate)*(1+rate)
= 1000*((1-(1+31.59%)^-10)/31.59%)*(1+31.59%)
= 1000*2.9620*1.3159
= 3897.75 Or 3898
2) Computation of the purchase price of bond today:-
Purchase price = Par value * Quoted percentage
= $1,000 * 111.364%
= $1,113.64
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
