Tom wants to have $200,000 in an investment account twenty-one years from now. The account will pay 0.52 percent interest per month. If she saves money every month, starting one month from now, how much will she have to save
Tom wants to have $200,000 in an investment account twenty-one years from now. The account will pay 0.52 percent interest per month. If she saves money every month, starting one month from now, how much will she have to save each month to reach her goal using TVM?
2. You want to purchase a new condominium that costs $250,000. Your plan is to pay 21 percent down in cash and finance the balance over 30 years at 4.7 percent APR. What will your monthly mortgage payment including principal and interest be using TVM?
3. Some 9.0 percent semiannual coupon bonds are selling for $946.00. The bonds have a face value of $1,000 and mature in 11 years. What is the expected percentage price increase in these bonds each year (the capital gain yield) using TVM?
4. A company wants to issue new 11-year, $1,000 face value bonds at par. The company currently has 5.50 percent coupon bonds on the market that sell for $973.00, make semiannual interest payments, and mature in 11 years. What coupon rate should the company set on its new bonds using TVM?
- Expert Answer
To solve these problems using TVM Time Value of Money calculations we can utilize the financial functions of TVM formulas or financial calculators 1 T View the full answer
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.