math guruu
AliceRanwodds
FINE332_Excel_Template_71.xlsxProb. 1-2
| 1. A firm issues a $300 million debt obligation that pays 4.5% per year over 30 years. How much will it have to pay at the end? |
| PV |
| Rate |
| Maturity (yrs.) |
| FV |
| 2. Suppose that a life insurance company has guaranteed a payment of $22 million to a pension fund 15 years from now. If the life insurance company receives a premium of $10.4 million from the pension fund and can invest the entire premium for 15 years at an annual interest rate of 4.25%, will it have sufficient funds from this investment to meet the obligation? |
| PV |
| Rate |
| Maturity (yrs.) |
| FV |
| Amount required |
| Over/(Under) |
Prob. 3
| (a) A firm is borrowing $35,000,000 from its bank at an annual interest rate of 4.7% for the first 3 years and 4.2% for 7 years after that. How much will it pay at the end? | ||
| PV | ||
| Rate | ||
| Maturity (yrs.) | ||
| FV | at the end of 3 years | |
| Rate | ||
| Maturity (yrs.) | ||
| FV | at the end of 10 years | |
| (b) Suppose the firm in (a) can take another bank's quote of $35,000,000 for 10 years at an annual rate of 4.25% compounded semiannually. How much would it pay at maturity? Is this investment alternative more attractive than the one in (a)? | ||
| PV | ||
| Rate | ||
| Maturity (yrs.) | ||
| FV | ||
| A is better/(worse) by |
Prob. 4
| Suppose a firm issues a $500 million debenture maturing in 30 years and with an annual rate of 3.75%. Interest is paid annually at the end of the year. How much will the firm have paid out in total coupon interest at the end? How much will it pay back in total at the end? |
| Principal |
| Coupon |
| Maturity (yrs.) |
| FV of coupon pmts. |
| Add debenture |
| Total Value |
Prob. 5
| HR has yearly pension payments to make and goes to management to request a lump sum that will satisfy this liability stream. Assuming a lump sum can be invested today at an interest rate of 4%, how much must be invested today to satisfy this liability stream? | |||
| Years from Now | Liability (in M$) | Rate | PV |
| 1 | 3.0 | 4.0% | |
| 2 | 3.5 | ||
| 3 | 4.5 | ||
| 4 | 5.6 | ||
| 5 | 7.2 | ||
| Lump Sum Total |
v. JAN '22
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