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Chapter 4: 21BP (page 283)
At a growth (interest) rate of 10 percent annually, how long will it take for a sum to double? To triple? Select the year that is closest to the correct answer
It will take 7 years and 12 years approximately to make a sum double and triple, respectively.
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Wilson Oil Company issued bonds five years ago at $1,000 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 15 percent. This return was in line with the required returns by bondholders at that point in time as described next:
Real rate of return ........................ 8%
Inflation premium ......................... 3
Risk premium .............................. 4
Total return ............................... 15%
Assume that 10 years later, due to bad publicity, the risk premium is now 7 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 15 years remaining until maturity. Compute the new price of the bond.
Question: You wish to retire in 14 years, at which time you want to have accumulated enough money to receive an annual annuity of \(17,000 for 19 years after retirement. During the period before retirement you can earn 8 percent annually, while after retirement you can earn 10 percent on your money. What annual contributions to the retirement fund will allow you to receive the \)17,000 annuity?
Question: Phil Goode will receive $175,000 in 50 years. His friends are very jealous of him. If the funds are discounted back at a rate of 14 percent, what is the present value of his future 鈥減ot of gold鈥�?
How much would you have to invest today to receive a. $15,000 in 8 years at 10 percent?
KeySpan Corp. is planning to issue debt that will mature in 2035. In many respects, the issue is similar to currently outstanding debt of the corporation. a. Using Table 11-3, identify the yield to maturity on similarly outstanding debt for the firm in terms of maturity. b. Assume that because the new debt will be issued at par, the required yield to maturity will be 0.15 percent higher than the value determined in part a. Add this factor to the answer in a. (New issues sold at par sometimes requirea slightly higher yield than older seasoned issues because there are fewer tax advantages and more financial leverage that increase company risk.) c. If the firm is in a 30 percent tax bracket, what is the aftertax cost of debt?
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