Question 1

A 25-year, $10,000 strip bond was issued at a market rate of 9.4% compounded semi-annually. What was the issue price?

Accepted Answer

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Question 2

A 30-year, $1,000 strip bond was issued by Sun Oil Company at a yield rate of 8.8% compounded semi-annually. How much money did Sun Oil borrow by issuing this bond?

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Question 3

What was the issue price of a 25-year strip bond with a face value of $50,000 and a discount rate of 7% compounded semi-annually?

Accepted Answer

The issue price of a strip bond is the present value of the future cash flows, which are the semi-annual coupon payments and the face value at maturity. The present value of a future cash flow is calculated as the cash flow divided by (1 + r)^n, where r is the discount rate and n is the number of periods. In this case, the discount rate is 7% compounded semi-annually, so r = 0.07/2 = 0.035. The number of periods is 25 years * 2 semi-annual periods per year = 50 periods. The face value is $50,000. The semi-annual coupon payment is $50,000 * 0.07 / 2 = $1,750. The present value of the future cash flows is:PV = $1,750 / (1 + 0.035)^1 + $1,750 / (1 + 0.035)^2 + ... + $1,750 / (1 + 0.035)^50 + $50,000 / (1 + 0.035)^50= $8,953.02Therefore, the issue price of the strip bond is $8,953.02.

Question 4

A nine-year, $270,000 promissory note bears interest at a rate of 8% compounded annually. What is its maturity value?

Accepted Answer

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Question 5

The population of Ourtown, Saskatchewan is expected to grow at a rate of 2.5% per year for the next five years. If the current population is 11,763 what is it expected to be in five years?

Accepted Answer

The population in five years can be calculated using the formula for compound growth: P = P0(1 + r)^t, where P0 is the initial population, r is the growth rate, and t is the time in years. Substituting the given values: P = 11,763(1 + 0.025)^5 ≈ 13,309.

Question 6

Six year old Jerry's grandmother is going to invest $18,000 now to pay for the first two years of Jerry's college education. She plans to provide him with two equal payments. The first will be in 11 years and the second will be in 12 years. If the investment earns 9% compounded semi-annually what will be the size of the two payments?

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Question 7

Calculate the missing value:

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