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Each of the following problems describes an annuity. Determine whether the amount indicated is the annuity’s present value or future value. Also, provide a 1-sentence explanation.
(a) The Belcoda Municipal Electric Company expects that in 5 years’ time, it will need to make significant upgrades to its equipment. In order to set aside enough money to pay these expenses, the utility has begun depositing $98,000 each quarter in to an investment account each quarter. Is the amount they are trying to accumulate a present value or future value?
(b) Otisco County won a judgment against a former contractor that will require the contractor to pay the county $52,000 per year for the next 20 years. Instead of having to make payments for the next 20 years, the contractor offers to pay the county $835,000 in one lump sum immediately. Does the $835,000 amount represent a present value or future value?
(c) Three years ago, Merl bought a new car and borrowed the entire cost. Is the cost of the car the present value of his monthly payments or the future value?
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). Suppose that today you buy an annual ..
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The annual returns on AAA stocks are normally distributed with an average historical return of 17.3% and a standard deviation of 33.4%. What is the probability that annual return on small-company stocks is between 10% and 30%?
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Recalling the standard (annual interest accrual) calculation of annual bond yields. b) A 5% one-year bond with a face value of $100 sells for $106. What is the bond's yield to maturity (redemption yield)? c) If the interest rate is 10% what is the pr..
Bit's product manager is under pressure to increase market share, but is uncertain about how to make the product more competitive. The product is reasonably well-positioned in the Thrift segment and enjoys relatively high awareness and accessibility...
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with a retirement income of $34,000 per month for 20 years, with the first payment received 30 years and 1 month from now.
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