1. One day as you were going through some old memorabilia, you discovered an old savings account in which you placed $100 twenty years ago. When you checked out the account, it currently had a balance of $320.71. What annual rate of interest did you earn?
6%
2. Arnold learned something very valuable as a teenager from his dad. He was told to invest $1,000 at 12% interest at age 20 and leave it alone until age 65. Arnold's dad knew that one strategy that wealthy people use is to exercise self-discipline to never touch this long-term plan. Arnold is very happy he applied his dad's advice. Approximately how long will it take Arnold's savings to grow into $2,000? 6 years
3. Your child's orthodontist offers you two alternative payment plans. He is indifferent to which alternative you choose. The first plan requires a $4,000 immediate up-front payment. The second plan requires you to make monthly payments of $137.41, payable at the end of each month for 3 years. What nominal annual interest rate is built into the monthly payment plan?
4. A 25-year, $1,000 par value bond has an 9.5% annual coupon. The bond currently sells for $975. If the yield to maturity remains at its current rate, what will the price be 5 years from now?
5. The Pennington Corporation issued bonds on January 1, 1987. The bonds were sold at par, had 12% annual coupon, paid semi-annually, and mature on December 31, 2016.
a) What was the Yield-to-Maturity (YTM) on the date the bonds were issued?
b) What was the price on January 1, 1992, assuming interest rates have fallen to 10%?
c) Find the current yield, capital gains/losses yield and total yield on January 1, 1992?