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Question;1Washington-Atlantic;invests $4 million to clear a tract of land and to set out some young pine;trees. The trees will mature in 10;years, at which time Washington-Atlantic plans to sell the forest at an;expected price of $8 million.;WHAT;IS WASHINGTON-ATLANTIC?S EXPECTED RATE OF RETURN?;A;mortgage company offers to lend you $85,000, the loan calls for payments of;$8,273.59 per year for 30 years.;WHAT;INTEREST RATE IS THE MORTGAGE COMPANY CHARGING YOU?;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 percent interest, compounded;annually, 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?;6-14;REACHING A FINANCIAL GOAL;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 that pays 12 percent 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?;6-15;PRESENT VALUE OF A CASH FLOW STREAM;SEE TEXT PAGE 254 FOR;PROBLEM;Assume a discount rate;of 10%.;WHICH OF THE THREE;CONTRACTS OFFERS THE QUARTERBACK THE MOST VALUE?;6-19;LOAN;AMORTIZATION;Your company is planning to borrow;$1,000,000 on a 5 year, 15% annual payment, fully amortized term loan.;WHAT FRACTION OF THE PAYMENT MADE AT THE;END OF THE SECOND YEAR WILL REPRESENT REPAYMENT OF PRINCIPAL?;6-20;NOMINAL COMPOUNDING;a.;It;is now January 1, 2003. You plan to make 5 deposits of $100 each;one every 6 months, with the first payment being made today.;IF;THE BANK PAYS A NOMINAL INTEREST RATE OF 12 PERCENT, BUT USES SEMIANNUAL;COMPOUNDING, HOW MUCH WILL BE IN YOUR ACCOUNT AFTER 10 YEARS?;b.;Ten;years from today you must make a payment of $1,432.02. To prepare for this payment, you will make;5 equal deposits, beginning today and for the next 4 quarters, in a bank that;pays a nominal interest rate of 12 percent, quarterly compounding.;HOW;LARGE MUST EACH OF THE 5 PAYMENTS BE?;="msonormal">


Paper#51194 | Written in 18-Jul-2015

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