I have a QCM to do about time value of money and I don’t understand at all… Can you please guys help me? Thank you!

Sam is a lucky student. Hi dad, mum, and grandpa have decided to give him money

because he is studying. His dad will give him $200 every week for the coming 4 years.

His mum will give him $300 every 2 weeks for the coming 4 years. His grandpa will give

him $400 every month for the coming 4 years. If the current discount rates are 3.6% APR

compounded monthly. What is the current value of the total amount of money that Sam

will be receiving in the coming four years?

A. 17,856

B. 29,040

C. 38,734

D. 67,774

E. 85,631

I made some calculations but couldn’t find the right answer. i’m pretty sure it’s D or E.

You are planning to retire 40 years from now. Once you retire you will be withdrawing

$60,000 at the beginning of every year and for another 40 years. To make your

retirement plans and for the coming 40 years, you will start depositing at the end of

every year a certain amount of money in your bank account. Since you are expecting

that your salary will grow by 1% every year for the coming 40 years than you expect

your yearly savings to grow by the same rate. If your bank is paying you 6% APR

compounded monthly. What should be your first deposit so that you can achieve your

retirement plan?

A. $4,152

B. $4,546

C. $4,824

D. $5,122

E. $5,565

I don’t know how to do this one as well. My calculations don’t match, I find around $6,000.

ABC Corporation issued 10-year bonds at a price of $1,000 (par value = $1,000). The

coupon rate on the bond is equal to 10%. Coupons are paid semi-annually. Suppose that

you have purchased ABC bonds when it was issued, kept for three years, and then sold it

for $850. Noting that you have invested the coupons given by ABC Company in the

period you were holding it in a bank at 6% APR compounded semi-annually. What is the

effective annual rate you have achieved on your investment?

A. -5.2732%

B. -6.3498%

C. 5.4988%

D. 6.2294%

E. 7.2348%

I don’t know why the answer would be negative but since I have no idea how to find the effective rate of a bond.

14. Last year ABC Company has issued a 10 year bonds at a par. The bonds coupon rate is

10% and it is paid semiannually. The price of the bond now is $950. The company is in

need of $5,000,000 in additional money today and is planning to issue new bonds

whose maturity is 9 years, coupon rate is 5%, par value equal to $1,000, paying semiannual

coupon. How many bonds company ABC needs to issue (pick the nearest

answer)?

A. 7,490

B. 6,800

C. 5,892

D. 4,325

E. None of the Above

5 years ago ABC Company has issued a 15 years bond at face value ($1,000). The bond

has a coupon rate of 8% and pays semi-annual coupons. Six months ago, you have

purchased ABC bond for $900. Today you have sold your ABC bond achieving a -5%

return on your investment. What is the bond yield to maturity currently?

A. 4.4198%

B. 5.1815%

C. 8.8397%

D. 10.3629%

E. 12.6458%

2 years ago Company XYZ had issued 10-year bonds at par. The coupon rate is equal to

10% and coupons are paid semi-annually. Today XYZ is lacking liquidity and is on the

edge of bankruptcy. However, they believe that they can fix their financial problems in

two years from now. As such, creditors have agreed to give Company XYZ a grace period

of two years in which no coupons are given to investors. The remaining coupons will be

distributed as scheduled. The postponed coupons will accrue interest at a 6% APR

compounded semi-annually and will be distributed to investors at the maturity of the

bond instead. The YTM of the bond is 20%. What is the price of XYZ Bond today?

A. 493.8471

B. 515.2275

C. 608.8145

D. 714.3615

E. 851.8471

Stocks) Company ABC has just paid dividend of $50. ABC dividends growth rate is

expected to be equal to 5% for the coming 5 years, 10% for the next 5 years, and 2%

thereafter. What is the price of ABC stock today if the required rate of return on ABCâ€™s

equity is 10%?

A. $198.1176

B. $217.9060

C. $339.6294

D. $505.1995

E. $921.2236

Can you please guys explain to me how to deal with those questions? I really need to understand how it works! Thx!

## Time Value Of Money: Bonds?

February 5th, 2013 admin