## If you borrow...

4. If you borrow $150,000 for five years at an 11.5% annual rate, compounded
monthly, payable at the end of the loan, how much will you have to pay at the end of
five years?

FV = $265,840.78

Using a financial calculator:

PV = $150,000%

i= 11.5÷12

N= 60

Compute FV

5. To calculate the present value of a bond portfolio, we apply a discount rate that
represents the (select two):

a) rate of return on the next best alternative investment.

c) investor's required rate of return.

6. XYZ Company is issuing zero-coupon bonds to fund its expansion plans. The bonds
have a face value of $100,000 and a maturity of five years. How much would an
investor requiring a 10% return be willing to pay today for one of these bonds?

$62,092.13

Using a financial calculator:

FV = $100,000%

i= 10

N= 5

Compute PV

PROGRESS CHECK

7. Assuming the investor can purchase the bond at the price you calculated in question
6, compare the XYZ bond to a $62,000 investment in ABC Company at 10%
compounded annually for five years.

What is the return on this investment?
$_____________________

Which investment will yield more to the investor?

_____ a) Loan to ABC Company

_____ b) Purchase of bond from XYZ Company

8. A college graduate with a new job and a promising career devises a ten-year savings
plan. On December 31 of each year she will make the following deposits:

Years 1-3: $1,000 each year

Years 4-6: $2,000 each year

Years 7-10: $5,000 each year

If the interest on the account is locked in at 8% per annum, how much will be in the
account at the end of ten years?

$_____________________

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