Question;FINANCE PROBLEM1. Future Value -- If you deposit $10,000 in a bank account that pays 10 percent interest annually, how much would be in your account after 5 years?2. Present Value -- What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7 percent annually?3. Your parents are planning to retire in 18 years. They currently have $250,000 and they would like to have $1,000,000 when they retire. What annual rate of interest would they have to earn on their $250,000 in order to reach their goal, assuming they save any additional funds?4. If you deposit money today into an account that pays 6.5 percent interest, how long will it take for you to double your money?5. You have $42,180.53 in a brokerage account, and you plan to deposit an additional $5,000 at the end of every future year until your account totals $250,000. You expect to earn 12% annually on the account. How many years will it take to reach your goal?6. What is the future value of a 7%, 5-year that pays $300 each year? If this were an annuity due, what would its future value be?7. Present And Future Values Of A Cash Flow Stream: An investment will pay $100 at the end of each of the next 3 years, $200 at the end of Year 4, $300 at the end of Year 5, and $500 at the end of Year 6. If other investments of equal risk earn 8% annually, what is its present value? Its future value?8. You want to buy a car, and a local bank will lend you $20,000. The loan will be fully amortized over 5 years You want to buy a car, and a local bank will lend you $20,000. The loan would be fully amortized over 5 years (60 months), and the nominal interest rate would be 12 percent, with interest paid monthly. What would be the monthly loan payment? What would be the loan?s EFR%?9. Find the following equations, then work the problems using a financial calculator4-9) Find the following values, using the equations, and then work the problems using a financial calculator to check your answers. Disregard rounding differences. a. An initial $500 compounded for 1 year at 6%$530.00b. An initial $500 compounded for 2 years at 6%$561.80c. The present value of $500 due in 1 year at a discount rate of 6%$471.70d. The present value of $500 due in 2 years at a discount rate of 6%$445.00(4-11) To the closest year, how long will it take $200 to double if it is deposited and earns the following rates?a. 7%10 yearsb. 10%7 yearsc. 18%4 yearsd. 100%1 year(4-12) Find the future value of the following annuities. The first payment in these annuities is made at the end of Year 1, so they are ordinary annuities.a. $400 per year for 10 years at 10%$6,374.97b. $200 per year for 5 years at 5%$1,105.13c. $400 per year for 5 years at 0%$2,000.00d. Now rework parts a, b, and c assuming that payments are made at the beginning of each year, that is they are annuities due.1. $7,012.612. $1,160.383. $2,000.00(4-13) Find the present value of the following ordinary annuities.a. $400 per year for 10 years at 10%$2,457.83b. $200 per year for 5 years at 5 %$865.90c. $400 per year for 5 years at 0%$2,000.00d. Now rework parts a, b, and c assuming that payment are made at the beginning of each year, that is, they are annuities due. 1. $2,703.612. $909.193. $2,000.00(4-14) Find the present values of the following cash flows streams. The appropriate interest rate is 8%.Year Cash Stream A Cash Stream B1 $100 $3002 400 4003 400 4004 400 4005 300 100PVA = $1,251.25PVB = $1,300.32b. What is the value of each cash flow stream at a 0% interest rate?PVA = $1,600.00PVB = $1,600.0015. Find the interest rates earned on each of the following:a. you borrow $700 and promise to pay back $749 at the end of year 1.b. you lend $700 and the borrower promises to pay you $749 at the end of year 1. c. you borrow $85,000 and promise to pay back $201,229 at the end of 10 years.d. you borrow $9,000 and promise to make payments of $2,684.80 at the end of each year for 5 years.16. Find the amount to which $500 will grow under each of the following conditions.a. 12% compounded annually for 5 yearsb. 12% compounded semiannually for 5 yearsc. 12% compounded quarterly for 5 yearsd. 12% compounded monthly for 5 years17. Find the present value of $500 due in the future under each of the conditions.a. 12% nominal rate, semiannual compounding, discounted back 5 yearsb. 12% nominal rate, quarterly compounded, discounted back 5 yearsc. 12% nominal rate, monthly compounding, discounted back 1 year.18. Find the future values of the following ordinary annuities.a. FV $400 paid each 6 months for 5 years at a nominal rate of 12%, compounded semiannuallyb. FV $200 each 3 months for 5 years at a nominal rate of 12%, compounding quarterlyc. The annuities described in parts and b have the same total amount of money paid into them during the 5 year period and both earn interest at the same nominal rate, yet the annuity in part b ends up larger than the one in part b earns $101.75 more than the one in part a over the 5 years. why does this occur?19. Universal Bank pays 7 percent interest, compounded annually, on time deposits. Regional Bank pays 6 percent interest, compounded quarterly.a. Based on effective interest rates, in which bank would you prefer to deposit your money? Whyb. Could your choice of banks be influenced by the fact that you might want to withdraw your funds during the year as opposed to at the end of the year? In answering this question, assume that funds must be left on deposit during the entire compounding period in order for you to receive interest.20. a. Set up an amortization schedule for a $25,000 loan to be repaid in equal installments at the end of each of the next 5 years. The interest rate is 10%. b. How large must each annual payment be if the loan is for $50,000? Assume that the interest rate remains at 10% and that the loan is still paid off over 5 years. c. How large must each payment be if the loan is for $50,000, the interest rate is 10%, and the loan is paid off in equal installments at the end of each of the next 10 years? This loan is for the same amount as the loan in part b, but the payments are spread out over twice as many periods. Why are these payments not half as large as the payments on the loan in part b?21. Sales for Hanebury Corporation's just-ended year were $12 million. Sales were $6 million 5 years earlier. a) at rate did sales growb)Suppose someone calculated the sales growth for Hanebury in part a as follows: ?Sales doubled in 5 years. This represents a growth of 100% in 5 years, dividing 100% by 5 results in an estimated growth rate of 20% per year.? Explain what is wrong with this calculation.22. Washington-Pacific invests $4 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 12 years, at which time W-P plans to sell the forest at an expected price of $8 million. What is W-P's expected rate of return?23. A mortgage company offers to lend you $85,000, the loan calls for payments of $8,273.59 at the end of each year for 30 years. What interest rate is the mortgage company charging you?24. To complete your last year in business school and then go through law school, you will need $10,000 per year for 4 years, starting next year (that is you will need to withdraw the first $10,000 one year from today). Your rich uncle offers to put you through school, and he will deposit in a bank paying 7% interest a sum of money that is sufficient to provide the 4 payments of $10,000 each. His deposit will be made today. a. How large must the deposit be? b. How much will be in the account immediately after you make the first withdrawal? After the last withdrawal?25. While Mary Karen was a student at the University of Tennessee, she borrowed $12,000 in student loans at an annual interest rate of 9%. If Mary repays $1,500 per year, then how long (to the nearest year) will it take her to repay the loan?26. You need to accumulate $10,000. To do so, you plan to make deposits of $1,250 per year, with the first payment being made a year from today, in a bank account which pays 12 % interest, compounded annually. Your last deposit will be less than $1,250 if less is needed to round out to $10,000. How many years will it take you to reach your $10,000 goal, and how large will the last deposit be?27. What is the present value of a perpetuity of $100 per year if the appropriate discount rate is 7%? If interest rates in general were to double and the appropriate discount rate rose to 14%, what would happen to the present value of the perpetuity?28. Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling securities that call for 4 payments of $50 (1 payment at the end of each of the next 4 years) plus an extra payment of $1,000 at the end of Year 4. Your friend says she can get you some of these securities at a cost of $1,025 each. Your money is now invested in a bank that pays an 10% nominal (quoted) interest rate but with quarterly compounding. You regard the securities as being just as safe, and as liquid, as your bank deposit, so your required effective annual rate of return on the securities is the same as that on your bank deposit. You must calculate the value of the securities to decide whether they are a good investment. What is their present value to you?29. Assume that your aunt sold her house on December 31, and to help close the sale she took a second mortgage in the amount of $40,000 as part of the payment. The mortgage has a quoted (or nominal) interest rate of 10%, but it calls for payments every 6 months, beginning on June 30, and is to be amortized over 10 years. Now, 1 year later, your aunt must inform the IRS and the person who bought the house about the interest that was included in the two payments made during the year. (This interest will be income to your aunt and a deduction to the buyer of the house.) To the closest dollar, what is the total amount of interest that was paid during the first year?
Paper#47655 | Written in 18-Jul-2015Price : $38