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##### FIN 260 Assignment 2

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solution

**Question**

Question;FIN 260;Assignment 2;1. First City Bank pays 7% simple;interest on its savings account balances, whereas Second City Bank pays 7%;compounded annually. If you made a $6,000 deposit in each bank, how much more;money would you earn from your Second City Bankaccount at the end of 9 years?;2. At 6.5;percent interest, how long does it take to quadruple your money?;3. You are;scheduled to receive $15,000in two years. When you receive it, you will invest;it for six more years at 7.1 percent per year. How much will you have in eight;years?;4.Investment;X offers to pay you $5,200 per year for eight years, whereas investment Y;offers to pay you $7,300 per year for five years. Which of these cash flow;streams has the higher present value if the discount rate is 5 percent?;5. First;National Bank charges 13.2 percent compounded monthly on its business loans.;First United Bank charges 13.5 percent compounded semiannually. As a potential;borrower, which bank would you go to for a new loan?;6. You want;to have $75,000 in your savings account 12 years from now, and you are prepared;to make equal annual deposits into the account at the end of each year. If the;account pays 6.8 percent interest, what amount must you deposit each year?;7. What is;the future value of $2,600 in 19 years assuming an interest rate of 7.9 percent;compounded semiannually?;8. You want;to buy a new sports coupe for $83,500, and the finance office at the dealership;has quoted you 6.5 percent APR loan for 60 months to buy the new car. What will;your monthly payments be?;9. First;Simple Bank pays 9 percent simple interest on its investments accounts. If;First Complex Bank pays interest on its accounts compounded annually, what rate;should the bank set if it wants to match First Simple Bank over an investment;horizon of 10 years?;10. You've;just joined the investment-banking firm of JP Morgan. They've offered you two;different salary arrangements. You can have $75,000 per year for the next two;years, or you can have $64,000 per year for the next two years, along with a;$20,000 signing bonus today. If the interest rate is 10% compounded monthly;which do you prefer?;11. You;have just won the lottery and will receive $1,000,000 in one year. You will;receive payments for 30 years, which will increase 3 percent per year. If the;appropriate discount rate is 7 percent, what is the present value of your;winnings? (Hint: think of the annuity;types i.e. growing annuity, perpetuity etc.);12.;You are prepared to make monthly payments of $ 290, beginning at the end of this;month, into an account that pays 7 percent interest compounded monthly. How;many payments will you have made when your account balance reaches $20,000?

Paper#47664 | Written in 18-Jul-2015

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