An investor purchased a $10,000, 5-year corporate note one year ago for $10,440. The note pays an annual coupon of $600. Over the past year, the note’s annual yield to maturity has dropped by 1%. What total return did the investor earn? A. 8% B. 8.5% C. 9% D. 9.5% Jim Franklin recently purchased a house for $300,000 on which he made a downpayment of $100,000. He obtained a 30 year mortgage to finance the balance at a fixed annual rate of 6%. If he makes regular, fixed monthly payments, what balance will remain after the 48th payment? A. $94,615 B. $186,109 C. $189,229 D. $192,444 Thanks everyone!

2nd problem U can solve this problem using the Amort function on the BAIIPlus calc Monthly payment amount PV = -200000 N=360 I/Y=.5 PMT = 1199.10 now hit 2nd Amort P1=47 down arrow P2=48 down arrow shows BAL =189229 Choice C An investor purchased a $10,000, 5-year corporate note one year ago for $10,440. The note pays an annual coupon of $600. Over the past year, the note’s annual yield to maturity has dropped by 1%. What total return did the investor earn? A. 8% B. 8.5% C. 9% D. 9.5% Po = 10440 This is a 6% annual coupon bond YTM = 4.98% (say 5%) Now with YTM = 4% and 1 year less on life P1=10726 HPR=(10726+600-10440)/10440 = 8.5% Choice B

B for 1st one

For the first question why do you assume that now he is selling it. Why not keep holding it until maturity? Just becase yields are down does not mean he is gonna sell!

very nice cpk123

With monthly payments we need a monthly rate: 6% / 12 = 0.5%. Next, solve for the monthly payment. The calculator keystrokes are: PV = 200,000; FV = 0; N = 360; I/Y = 0.5; CPT ¡ú PMT = -$1,199.10. The balance at any time on an amortizing loan is the present value of the remaining payments. There are 312 payments remaining after the 48th payment is made. The loan balance at this point is: PMT = ¨C1,199.10; FV = 0; N = 312; I/Y = 0.5; CPT ¡ú PV = $189,228.90. Note that only N has to be changed to calculate this new present value; the other inputs are unchanged.

cfaboston28, thank you for the amortization explanation. That was confusing before I read your post with the strokes description.

cpk, The 2nd amort function is very handy. However, i’m getting a balance of -199800.8989 even though I’m using the same data inputs as you. What did I do wrong this time??

cpk123 Wrote: ------------------------------------------------------- > 2nd problem > U can solve this problem using the Amort function > on the BAIIPlus calc > > Monthly payment amount > PV = -200000 N=360 I/Y=.5 PMT = 1199.10 > > now hit 2nd Amort > P1=47 down arrow P2=48 down arrow > shows BAL =189229 > > Choice C ----wow cpk123, you’re the BA2 guru aren’t you, 2nd Amort, wow, that’s impressive, did you read the whole manual? an alternative way to do it is, after these > Monthly payment amount > PV = -200000 N=360 I/Y=.5 PMT = 1199.10 change N=48, and cpt FV, you’ll get the same answer still, that 2nd Amort is impressive, you can do a course on how to use your BA2 calc

dimitrous Wrote: ------------------------------------------------------- > cpk, > The 2nd amort function is very handy. However, i’m > getting a balance of -199800.8989 even though I’m > using the same data inputs as you. What did I do > wrong this time?? i do get the same result whichever number i type in for the p1 & p2 values… hmmm.

You use the 2nd Amort after you calculate the PMT first time round. Then P1=47, P2=48 then down arrow --> gives you the 189… whatever answer. Maybe you need to CLR WORK, CLR TVM Before you do this.

cpk123 Wrote: ------------------------------------------------------- > You use the 2nd Amort after you calculate the PMT > first time round. > > Then P1=47, P2=48 > > then down arrow --> gives you the 189… whatever > answer. > > Maybe you need to CLR WORK, CLR TVM Before you do > this. thanks but still 199… well i know how to use it with “n=312” so guess it comes down to: “never change a winning team…” lol

dimitrous/ bart, guys… I got the same… try again… but this time when you get to 2nd Amort 2nd Clr Work p1 = 47 down Arrow p2 = 48 ENTER down arrow = 189

thanks chad. works now…

Thanks everyone, those answers are bang on. (C,B) I especially appreciate the explanations of how to get there and its great when there is more than one way to figure something out! More questions coming soon I’m sure!

deleted

deleted, whops!

I did the same but imputed p1=48 p2=48 you get the same answer basically when you imput you can select p1 anything below 48 and will get the same balance which makes a lot of sense. but if we get a question that asks what was the interest and principal amount paid between payment 45 and 56 then you have to use p1 too