 ## 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?
\$_____________________