Question

L. 10.00 percent Our lo travel ti vertising scale winter vacation package TOT V ten years from now to Antarctica. The package requires that you pay $20.000 today, $30.000 one year from today, and a final payment of $15,000 on the day you depart ten years from today. What is the cost of this vention in today's dollars if the discount rate is 8 percent? A $70,011 B. $79,262 C. 885,229 D. 891.958 E. 896,420 20. A wo coupon bond is trading at 70% of its par value. Assuming yield- to-maturity is 15% per year. What is the time to maturity?! A 1.43 B. 2.55 C. 4.15 D. 3.38 E. 3.27

Answer 1

Today's Cost = Payment * PVF(r%, n)

Year	CF	PVF @8%	Disc CF
0	$ 20,000.00	1.0000	$ 20,000.00
1	$ 30,000.00	0.9259	$ 27,777.78
10	$ 48,000.00	0.4632	$ 22,233.29
Cost of Vacation			$ 70,011.07

Option A is correct

Part B:

PV = FV / (1+r)^n

700 = 1000/ (1+0.15)^n

1.15^n = 1000 / 700

= 1.4286

Take Log on Both sides

Log(1.15^n) = Log1.4286

n * Log(1.15) = Log 1.4286

n * 0.0607 = 0.1549

n = 0.1549 / 0.0607

= 2.55 Years