You can buy a 5-year bond today for $9,000 though the bond's face value is $10,000....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You can buy a 5-year bond today for $9,000 though the bond's face value is $10,000. The bond rate is 10% p.a. (nominal) and interest is paid semi-annually. The redemption price is equal to the face value. Draw a cash flow diagram for this bond from your perspective. If your effective annual interest rate for both reinvestments and financings (i.e., your minimum attractive effective annual yield) is 12.36% p.a., what is the annual external rate of return (ERR) of this investment? Would you invest in this bond? Why? You can buy a 5-year bond today for $9,000 though the bond's face value is $10,000. The bond rate is 10% p.a. (nominal) and interest is paid semi-annually. The redemption price is equal to the face value. Draw a cash flow diagram for this bond from your perspective. If your effective annual interest rate for both reinvestments and financings (i.e., your minimum attractive effective annual yield) is 12.36% p.a., what is the annual external rate of return (ERR) of this investment? Would you invest in this bond? Why?
Expert Answer:
Answer rating: 100% (QA)
ans Wehave been given 5 Years 9000 Tenure Present Value Face Value Coupon Interest 10000 10 sem... View the full answer
Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Posted Date:
Students also viewed these accounting questions
-
Draw a cash flow diagram for the following cashflow: YEAR Receipts (S) Disbursements ($) 0 2 3 4 1,000 0 0 2,000 2,000 1,000 4,750 0 0 0
-
Draw a cash flow diagram for the following cashflow: YEAR Receipts (S) Disbursements ($) 2 3 4 0 5,000 5,000 0 0 5,000 7,500 5,000 0 0
-
You can buy a car for $20,000, or you can lease it for 36 monthly payments of $350 each, with the first payment due immediately. At the end of the 36 months the car will be worth $10,000. Which...
-
1. Determine and confirm purchasing requirements for at least six (6) of the goods listed in the knowledge evidence. 2.Make purchase arrangements for the goods to meet different: End product...
-
Use Solver to create Answer and Sensitivity Reports for question 21 at the end of Chapter 2 and answer the following questions: a. If the profit on doors increased to $700 would the optimal solution...
-
(a) Explain the purpose of the two accounts: Depreciation Expense and Accumulated Depreciation. (b) What is the normal balance of each account? (c) Is it customary for the balances of the two...
-
Holmes Ltd, which has a year end of 30 September, is considering the replacement of its now outdated mainframe computer on 1 October 1988. The replacement computer has a cost of \( 2120000\) and its...
-
At December 31, 2012, Besler Corporation had a projected benefit obligation of $560,000, plan assets of $322,000, and prior service cost of $127,000 in accumulated other comprehensive income....
-
Calculate the definite integral by referring to the figure with the indicated areas. [1( x) dx . .. Ab C d X 0 a B C D Area A = 1.469 Area C =5.727 Area B = 2.402 Area D = 1.865 C f ( x ) dx = 0
-
Last summer, Kyle opened Subterranean: A New Kind of Sandwich Shop in Akron, Ohio. The following is his production schedule. Subterranean: A New Kind of Sandwich Shop Subs Total Workers Ovens per...
-
How does the effective interest rate method for amortizing bond discounts or premiums differ from the straight - line method? The effective interest rate method is only applicable to bonds issued at...
-
Longo Corp. has the following cash flow ($6,050) operating profit, ($1,320) operations, ($693), and 415 financing. Davis co. Has the following cash flow ($2,980) operating profit, (3, 260)...
-
Explain the process of alternative splicing in eukaryotic gene expression and its significance in generating protein diversity.
-
Jack and Jill Trzetrzelewska want to purchase an apartment for $160,000. First Australia Bank (FAB) will lend them the required funds at a fixed interest rate of 9% per annum for a 25-year period,...
-
FCF = Net income + Interest exp. +Dep.ANWC + Net cash from investing activity - Unlevered FCF = EBIT(1 tax rate) + Dep. -ANWC + Net cash from investing activity EBIAT Forecast 2010 2011 2012 2013...
-
1. Edwards Company has the following expected pattern of collections on credit sales: 70 percent collected in the month of sale, 15 percent in the month after the month of sale, and 14 percent in the...
-
As the workshop series continues, Dr. Torres steered the conversation toward the operational vulnerabilities within their supply chain. The recent uptick in demand for their flagship immunotherapy dru
-
What is an access control list?
-
It is being decided whether or not to replace an existing piece of equipment with a newer, more productive one that costs $80,000 and has an estimated MV of $20,000 at the end of its useful life of...
-
How much life insurance should Stan Moneymaker buy if he wants to leave enough money to his family so that they get $25,000 per year forever in constant dollars as of the year of his death? The...
-
In the production of shafts, it is assumed that the diameters of the shafts produced are normally distributed, with mean = 50mm and variance = 8mm2. What is the probability that the diameter of a...
-
Application of materials handling costs A manufacturing company budgets the follow- ing costs for its materials handling operations: The company estimates that during the coming year, the materials...
-
Journal entries for payroll and payroll costs Arbocodiel Company employs five office employees whose monthly pay is as follows: In addition to the above salaries, Arnold earned a $300 bonus and...
-
Payroll and payroll costs Following are the August payroll data for Sabul Company: The FICA tax rate on employees and employers is 7 percent of pay. Workers' compensation is .06 percent. Only $11,000...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App