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Question;FINANCE PROBLEM;1.;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 calculator;4-9) 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%;$530.00;b. An initial $500 compounded for 2 years at 6%;$561.80;c. The present value of $500 due in 1 year at a discount rate of 6%;$471.70;d. 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 years;b. 10%;7 years;c. 18%;4 years;d. 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%;$6,374.97;b. $200 per year for 5 years at 5%;$1,105.13;c. $400 per year for 5 years at 0%;$2,000.00;d. 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. $7,012.61;2. $1,160.38;3. $2,000.00;(4-13) Find the present value of the following ordinary annuities.;a. $400 per year for 10 years at 10%;$2,457.83;b. $200 per year for 5 years at 5 %;$865.90;c. $400 per year for 5 years at 0%;$2,000.00;d. 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. $2,703.61;2. $909.19;3. $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 B;1 $100 $300;2 400 400;3 400 400;4 400 400;5 300 100;PVA = $1,251.25;PVB = $1,300.32;b. What is the value of each cash flow stream at a 0% interest rate?;PVA = $1,600.00;PVB = $1,600.00;15. 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 years;b. 12%;compounded semiannually for 5 years;c. 12%;compounded quarterly for 5 years;d. 12%;compounded monthly for 5 years;17. Find the present value of $500 due in;the future under each of the conditions.;a. 12% nominal rate, semiannual compounding, discounted back 5 years;b. 12% nominal rate, quarterly compounded, discounted back 5 years;c. 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;semiannually;b. FV $200 each 3 months for 5 years at a nominal rate of 12%, compounding;quarterly;c. 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? Why;b. 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 grow;b)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#47822 | Written in 18-Jul-2015

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