1) Consider a zero−coupon bond with a? $1000 face value and 14 years until maturity. If the YTM of this bond is? 7%,

Question

1) Consider a zero−coupon bond with a? $1000 face value and 14 years until maturity. If the YTM of this bond is? 7%, then the price of this bond is $________ 2) Carlyle plans to make month-end contributions of $400 to his RRSP from age 20 to age 40. From age 40 to age 65, he plans to make no further contributions to his RRSP. The RRSP can earn 9% compounded annually from age 20 to age 60, and then 5% compounded annually from age 60 to age 65. Under this plan, what is the maturity value of his RRSP when he turns 65?

Help In Homework · Accepted Answer

1) We can calculate the price of bond by using the following formula in excel:- =-pv(rate,nper,pmt,fv) Here, PV = Price of bond Rate = 7% Nper = 14 periods Pmt = 0 FV = 41,000 Substituting the values in formula: = -pv(7%,14,0,1000) = $387.82 2) We can calculate the amount at age 40 by using the following formula in excel:- =fv(rate,nper,-pmt,pv) Here, FV = Amount at age 40 Rate = 9%/12 = 0.75% (monthly) Nper = 20*12 = 240 periods (monthly) Pmt = $400 PV = $0 Substituting the values in formula: = fv(0.75%,240,-400,0) = $267,154.75 We can calculate the amount at age 60 by using the following formula in excel:- =fv(rate,nper,-pmt,pv) Here, FV = Amount at age 60 Rate = 9%/12 = 0.75% (monthly) Nper = (60-40)*12 = 240 periods (monthly) Pmt = $0 PV = $267,154.75 Substituting the values in formula: = fv(0.75%,240,0,-267154.75) = $1,605,373.36 We can calculate the maturity value by using the following formula in excel:- =fv(rate,nper,-pmt,pv) Here, FV = Maturity value Rate = 5% Nper = 65-60 = 5 periods Pmt = $0 PV = $1,605,373.36 Substituting the values in formula: = fv(5%,5,0,-1605373.36) = $2,048,908.42

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1) Consider a zero−coupon bond with a? $1000 face value and 14 years until maturity

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