FRL 3000 Exam 1

When a corporation or government wishes to borrow money from the public on a long-term basis, it usually does so by issuing or selling debt securities that are generically called

bonds

The amount that will be repaid at the end of the loan is called the bond's

face value, or par value

Prescott Bank offers you a five-year loan for $66,000 at an annual interest rate of 7.5 percent. What will your annual loan payment be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

= N 5 I/Y 7.5 PV 66,000 CPT PMT= 16,312.87

What is the future value of $3,000 in 20 years assuming an interest rate of 8.3 percent compounded semiannually? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

=3000 PV 40 N 4.15 I/Y CPT FV= 15,257.81

An investment will pay you $52,000 in 10 years. If the appropriate discount rate is 7.9 percent compounded daily, what is the present value? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

=N 10*365 I/Y 7.9*365 FV 52,000 CPT PV=23,601.95

The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $31,000 per year forever. If the required return on this investment is 6.3 percent, how much will you pay for the policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Insurance Policy payment per year is 31,000. Required return on this investment is 6.30%. Calculate the present value of the Insurance policy= 31000/0.0630=492,063.49

the annual coupon divided by the face value is called the

coupon rate

regular interest payments that Beck promises to make are called the bond's

coupons

which is a bond's annual coupon divided by its price

current yield,

interest rate required in the market on a bond is called

the bond's yield to maturity (YTM). This rate is sometimes called the bond's yield for short.

To determine the value of a bond at a particular point in time, we need to know

the number of periods remaining until maturity, the face value, the coupon, and the market interest rate for bonds with similar features.

The number of years until the face value is paid is called the bond's

time to maturity