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7. Assuming the investor can purchase the bond at the price you calculated in question
6, compare the XYZ bond to a $62,000 investment in ABC Company at 10%
compounded annually for five years.
What is the return on this investment?
$37,851.62
Using a financial calculator:
PV = $62,000%
i = 10
N = 5
Compute FV = $99,851.62 - 62,000 = 37,851.62
Which investment will yield more to the investor?
b) Purchase of bond from XYZ Company
ABC Company Loan: FV = $99,851.62 - 62,000 = 37,851.62
XYZ Bond:
FV = $100,000 - 62,092.13 = 37,907.87
8. A college graduate with a new job and a promising career devises a ten-year savings
plan. On December 31 of each year she will make the following deposits:
Years 1-3: $1,000 each year
Years 4-6: $2,000 each year
Years 7-10: $5,000 each year
If the interest on the account is locked in at 8% per annum, how much will be in the
account at the end of ten years?
$36,927.70
Using a financial calculator (first deposit):
PV = $1,000%
i = 8
N = 9
Compute FV = 1,999.00
Year Deposit x FVIF = Payments
1 $1000 x (1.08)9 = 1,999.00
2 $1000 x (1.08)8 = 1,850.93
3 $1000 x (1.08)7 = 1,713.82
4 $2000 x (1.08)6 = 3,173.75
5 $2000 x (1.08)5 = 2,938.66
6 $2000 x (1.08)4 = 2,720.98
7 $5000 x (1.08)3 = 6,298.56
8 $5000 x (1.08)2 = 5,832.00
9 $5000 x (1.08)1 = 5,400.00
10 $5000 x (1.08)0 = 5,000.00
FV = $36,927.70
The continuation/full version of this article read on site www.history-society.com - Basics of Corporate Finance