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##### 1. Consider a one-year discount bond that pays $2,...

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1. Consider a one-year discount bond that pays $2,000 one year from now. If the rate of discount is 3 percent, calculate the present value of the bond. 2. Consider a one-year discount bond that has a present value of $3,000. If the rate of discount is 5 percent, calculate the future value of the bond (the amount the bond pays in one year). 3. Consider a perpetuity that pays $300 every year. If the rate of discount is 6 percent, calculate the present value of the bond. 4. Consider a fixed-payment security that pays $250 at the end of every year for eight years. If the rate of discount is 3 percent, calculate the present value of the bond. 5. Consider a coupon bond that pays $150 every year and repays its principal amount of $2,000 at the end of six years. If the rate of discount is 7.5 percent, what is the present value of the bond? 6. Consider a coupon bond that pays $350 every year and repays its principal amount of $5,000 at the end of four years. If the rate of discount is 6 percent, what is the present value of the bond? 7. Answer the questions below. Chapter 4: Present Value 55 a. You are negotiating a book deal for your newest novel in which an economist single-handedly saves the world. The publisher offers to pay you an advance of $1 million today plus $500,000 at the end of each of the next three years. What is the present value of these payments, given your rate of discount of 5 percent? Show your work. You may round to the nearest thousand dollars. b. You counter the publisher's offer with a counteroffer that will pay you $1.5 million today plus $5 per book sold in each of the next three years. You think you will sell 80,000 books each year in that period, but the publisher thinks you will only sell 40,000 books each year. Explain why both you and the publisher like this counteroffer better than the deal in part a. Show your work. 8. You borrow $30,000 for 10 years to pay tuition and fees. The annual interest rate is 12 percent. What monthly payment would be required to pay off the loan

Paper#8529 | Written in 18-Jul-2015

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