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# Market value of bond, PV of investment, amount of annuity

1. A bond matures in 20 years, at which time it pays the owner \$1,000. It also pays \$70 at the end of each of the next 20 years. If similar bonds are currently yielding 8%, what is the market value of the bond?
A. Over \$1,000
B. Under \$1,000
C. Exactly \$1,000
D. Cannot be determined from the info given

2. An investment is expected to yield \$300 in three years, \$500 in five years, and \$300 in seven years. What is the present value of this investment if our opportunity rate is 5%?

3. You estimate you'll need \$100,000 per year for 30 years starting on your 65th birthday to live on during your retirement. Today is your 50th birthday and you want to make equal deposits into an account paying 7% interest per year, the first deposit today and the last deposit on your 64th birthday. How much must each deposit be (rounded to the nearest \$10)?

#### Solution Preview

1. A bond matures in 20 years, at which time it pays the owner \$1,000. It also pays \$70 at the end of each of the next 20 years. If similar bonds are currently yielding 8%, what is the market value of the bond?
A. Over \$1,000
B. Under \$1,000
C. Exactly \$1,000
D. Cannot be determined from the info given

Price of Bond= Present Value of Inflows= 902
Present value of inflows = Present value of annualcoupons Interest received + Pv of Principal repayment

PV of coupons= \$687.27 ...

#### Solution Summary

Response helps in calculating Market value of bond, PV of investment, amount of annuity deposits

\$2.19