### Question Description

I’m working on a business question and need guidance to help me study.

Question 1

Assume that you are nearing graduation and have applied for a job with a local bank. As part of the bank’s evaluation process, you have been asked to take an examination that covers several financial analysis techniques. The first section of the __question __addresses time value of money analysis. See how you would do by answering the following questions.

- Draw time lines for (a) a $2000 lump sum cash flow at the end of year 4, (b) an ordinary annuity of $1000 per year for 5 years, and (c) an uneven cash flow stream of -$450, $1000, $650, $850 and $500 at the end of years 0 through 4.
- What is the future value of an initial $1000 after 5 years if it is invested in an account paying 5% annual interest?
- What is the present value of $1000 to be received in 4 years if the appropriate interest rate is 5%?
- We sometimes need to find out how long it will take a sum of money (or anything else) to grow to some specified amount. For example, if a company’s sales for 2020 is $1000 and expected to grow at a rate of 10% per year, how long will it take sales to double?
- If you invested $10,000 in an investment account and you expect it to double in 4 years, what interest rate must it earn?
- What is the future value of a 5-year ordinary annuity of $1000 if the appropriate interest rate is 5%? What is the present value of the annuity?
- What is the future value of $1000 after 4 years under 10% annual compounding? Semiannual compounding? Quarterly compounding? Monthly compounding? Daily compounding
- What is the effective annual rate (EAR or EFF%)? What is the EFF% for a nominal rate of 5%, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily?
- Construct an amortization schedule for a $1,000, 12% annual rate loan with 4 equal installments. What is the annual interest expense for the borrower, and the annual interest income for the lender, during Year 2?
- Suppose on January 1 you deposit $1000 in an account that pays a nominal, or quoted, interest rate of 12%, with interest added (compounded) daily. How much will you have in your account on October 1, or 9 months later?
- You want to buy a car, and a local bank will lend you $10,000. The loan would be fully amortized over 6 years (72 months), and the nominal interest rate would be 10%, with interest paid monthly. What is the monthly loan payment?
- While Mary Corens was a student at the University of Tennessee, she borrowed $20,000 in student loans at an annual interest rate of 5%. If Mary repays $200 per year, then how long (to the nearest year) will it take her to repay the loan?

Question 2

1. Jackson Corporation’s bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. The bonds have a yield to maturity of 10%. What is the current market price of these bonds?

2. Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 10 years, have a face value of $1,000, and a yield to maturity of 9%. What is the price of the bonds?

3. Wilson Wonders’s bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $900. What is their yield to maturity?

4. Heath Foods’s bonds have 10 years remaining to maturity. The bonds have a face value of $1,000 and a yield to maturity of 9%. They pay interest annually and have a 10% coupon rate. What is their current yield?

5. Suppose Hillard Manufacturing sold an issue of bonds with a 12-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments.

- Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 5%. At what price would the bonds sell?
- Suppose that 2 years after the initial offering, the going interest rate had risen to 11%. At what price would the bonds sell?
- Suppose that 2 years after the issue date (as in part a) interest rates fell to 5%. Suppose further that the interest rate remained at 5% for the next 10 years. What would happen to the price of the bonds over time?

Submit your answers in a Word and/or Excel document.