# Concepts of FV, NPV, annuities, risk, bonds, US Treasuries

1. A new SUV costs $33,000. You must pay 6% sales tax. You will put 10% of this total as a down payment.

For 60 months, you must borrow at an annual rate of 10%.

What annual rate would have the same payments stream at 48 months?

(Payments at 10% for 60 months = "X" % for 48 months).

2. A rare painting increases in value 3% each year.

You bought it for $50,000 by financing $40,000 at 6% for 30 years (use annual compounding).

What is the painting's value at the end of 5 years?

3. What is the total equity achieved in #2 above after 5 years? (Market value less loan amount)

4. Say a college education costs $40,000 on average.

Say an uneducated person earns, on average, $25,000 per year

Say an educated person earns, on average, $48,000 per year.

What is the present value of the benefit of education, if you used an 8% rate and 40 years?

Cash 0 Accounts Payable

Accounts receivable Long-term Debt 60,000

Inventories Common Stock

Fixed Assets Retained Earnings 97,500

Total Assest 300,000 Total Liabilities and Equity

Sales Cost of Goods Sold

Debt ratio 50%

Current Ratio 1.8X

Total asset Turnover 1.5X

Days sales Outstanding 36.5 (Based on 365 day year)

Gross Profit [ (Sales -COGS)/ Sales ] 25%

Inventory Turnover 5X

5 What is annual sales figure?

6 What is the COGS?

7 How much cash does the company report?

8 What are the A/P?

Maturity Treasury Bond AA-rated BBB-rated

1 5.50% 6.70% 7.40%

5 6.10% 7.40% 8.10%

10 6.80% 8.20% 9.10%

20 7.40% 9.20% 10.20%

30 7.70% 9.80% 11.10%

(Note: a basis point is 1/100th of a percent; or 0.01%)

9 How many basis points are the riskiest bonds trading over treasuries in the 20 year spectrum?

10 How many basis points are gained by selling a 5-yr US Treasury and buying a 30-yr BBB?

11 What maturity has the biggest spread between high grade corporates and low grade corporate bonds?

12 Suppose you purchase a 10 US Treasury bond and held it for 5 years.

Further suppose that this chart does not change for 5 years (or in 5 years this is what exits).

If you hold the bond for that entire period and sold it at that time, what would be your holding period yield?

https://brainmass.com/business/annuity/concepts-fv-npv-annuities-risk-bonds-usa-treasuries-spreads-257817

#### Solution Summary

The concepts of FV, NPV, annuities, risk, bonds and the US treasuries is examined.