There are 4 finance questions below. Would need work shown with answer.
9-4. You are planning to invest $2,500 today for three years at a nominal
interest rate of 9 percent with annual compounding.
a. What would be the future value (FV) of your investment?
b. Now assume that inflation is expected to be 3 percent per year
over the same three-year period. What would be the investment’s
FV in terms of purchasing power?
c. What would be the investment’s FV in terms of purchasing
power if inflation occurs at a 9 percent annual rate?
9-15. Assume a bank loan requires an interest payment of $85 per year
and a principal payment of $1,000 at the end of the loan’s eight-year life.
a. At what amount could this loan be sold for to another bank if
loans of similar quality carried an 8.5 percent interest rate?
That is, what would be the present value (PV) of this loan?
b. Now, if interest rates on other similar quality loans are 10
percent, what would be the PV of this loan?
c. What would be the PV of the loan if the interest rate is 8
percent on similar quality loans?
10-6. The Garcia Company’s bonds have a face value of $1,000, will
mature in ten years, and carry a coupon rate of 16 percent. Assume
interest payments are made semi-annually.
a. Determine the present value of the bond’s cash flows if the
required rate of return is 16 percent.
b. How would your answer change if the required rate of return
is 12 percent?
10-7. Judith, Inc., bonds mature in eight years and pay a semi-annual
coupon of $55. The bond’s par value is $1,000.
a. What is their current price if the market interest rate for
bonds of similar quality is 9.2 percent?
b. A change in Fed policy increases market interest rates 0.50
percentage points from their level in part (a). What is the
percentage change in the value of Judith, Inc. bonds from
their value in part (a)?
c. Better profi ts for Judith, Inc. reduces the market interest rate
for its bonds to 9.0 percent. What is the percentage change in
the value of Judith, Inc. bonds from the answer in part (b)?
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