Section 1: TVM basics
1. Suppose a State of Texas bond will pay $5,000 ten years from now. If the going interest rate on these 10-year bonds is 2.0%, how much is the bond worth today?
2. Suppose you have $1,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 2.0% annual interest, compounded annually. How much will you have when the CD matures?
3. Suppose you have $1,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 2.0% annual interest, compounded quarterly. How much will you have when the CD matures?
(Hint: You need to convert the annual interest rate 1.2% into the quarterly interest rate, and convert 15 years into 10*4=40 quarters to get correct answer).
4. Suppose you have $1,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 2.0% annual interest, compounded monthly. How much will you have when the CD matures?
(Hint: You need to convert the annual interest rate 1.2% into the monthly interest rate, and convert 15 years into 10*12= 120 months to get correct answer).
5. Suppose the U.S. Treasury offers to sell you a bond for $880.00. No payments will be made until the bond matures 7 years from now, at which time it will be redeemed for $1,000. What interest rate would you earn if you bought this bond at the offer price?
Section 2: Loan Amortization
1. Construct an amortization schedule for the $400,000 loan with a 3.25% interest rate compounded monthly. The loan will be paid back in 15 years making monthly payments.
Identify the principal and interest payment of each month.
Hint: Please use the excel file of "Loan Amortization "posted in Unit 4 "Lecture". Also, please make sure you will "modify the loan amortization model" to 15 years as required.
2. Construct an amortization schedule for the $400,000 loan with a 3.75% interest rate compounded monthly. The loan will be paid back in 30 years making monthly payments.
Hint: Now you need to "modify the loan amortization model" to 30 years as required.
Attachment:- Assignment Files.rar