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Imagine you invest $400 in a discount bond that pays out $1000 in 10 years. You then take the proceeds of that investment and invest it in a 4 year “balloon loan” in which the borrower will pay you back $30 each month with one balloon payment of $200 at the maturity of the loan. (1) What is the APR and APY of the bond you buy? (2) What is the APR and APY of the loan you give? (3) If your required rate of return is 10% for each investment, what is the net present value of your entire stream of CFs?

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Financial Management, Finance

Category:- Financial Management
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