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Davenport FINC510 week 3 cengage Problems

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Question;Problem 4-13;Present Value of an Annuity;?;eBook;?;Find the present value of the following ordinary annuities.;Round your answers to the nearest cent. (Notes:If you are using a financial calculator, you can enter the known;values and then press the appropriate key to find the unknown variable. Then;without clearing the TVM register, you can "override" the variable;that changes by simply entering a new value for it and then pressing the key;for the unknown variable to obtain the second answer. This procedure can be;used in many situations, to see how changes in input variables affect the;output variable. Also, note that you can leave values in the TVM register;switch to "BEG," press FV, and find the FV of the annuity due.);a. $800 per;year for 10 years at 8%.;$;b. $400 per;year for 5 years at 4%.;$;c. $800 per;year for 5 years at 0%.;$;Now rework parts a, b, and c assuming that payments are made at;the beginning of each year, that is, they are annuities due.;d. $800 per;year for 10 years at 8%.;$;e. $400 per;year for 5 years at 4%.;$;?;Check My Work(3;remaining);Problem 4-6;Future Value: Ordinary Annuity versus Annuity Due;What's the future;value of a 4%, 4-year ordinary annuity that pays $500 each year? Round your;answer to the nearest cent.;$;If this were an;annuity due, what would its future value be? Round your answer to the nearest;cent.;$;Problem 4-11;Time for a Lump Sum to Double;To the next whole year, how long will it take $200 to double if;it is deposited and earns the following rates? Round your answers up to the;next highest year. [Notes:(1) If;you are using a financial calculator, you can enter the known values and then;press the appropriate key to find the unknown variable. Then, without clearing;the TVM register, you can "override" the variable that changes by;simply entering a new value for it and then pressing the key for the unknown;variable to obtain the second answer. This procedure can be used in parts b and;d, and in many other situations, to see how changes in input variables affect;the output variable.) (2) This problem cannot be solved exactly with some;financial calculators. For example, if you enter PV = -200, PMT = 0, FV = 400;and I = 7 in an HP-12C, and then press the N key, you will get 11 years. The;correct answer is 10.2448 years, which rounds to 10, but the calculator rounds;up. However, the HP-10B gives the correct answer.];a. 6%.year(s);b. 10.1%.year(s);c. 16%.year(s);d.;100%.year(s);Problem 4-4;Number of Periods of a Single Payment;If you deposit money today in an;account that pays 5.2% annual interest, how long will it take to double your;money? Round your answer to the nearest whole.;years;Problem 4-7;Present and Future Value of an Uneven Cash Flow Stream;An investment will pay $200 at the;end of each of the next 3 years, $400 at the end of Year 4, $600 at the end of;Year 5, and $800 at the end of Year 6. If other investments of equal risk earn;4% annually, what is its present value? Round your answer to the nearest cent.;$;What is its future value? Round your;answer to the nearest cent.;$;A $50,000 loan is to be amortized over 7 years, with annual end-of-year;payments. Which of these statements is CORRECT?;a.;The annual payments would be larger if the interest rate were lower.;b.;If the loan were amortized over 10 years rather than 7 years, and if the;interest rate were the same in either case, the first payment would include;more dollars of interest under the 7-year amortization plan.;c.;The proportion of each payment that represents interest as opposed to;repayment of principal would be lower if the interest rate were lower.;d.;The last payment would have a higher proportion of interest than the first;payment.;e.;The proportion of interest versus principal repayment would be the same for;each of the 7 payments.;Q8;A $150,000 loan is to be amortized;over 7 years, with annual end-of-year payments. Which of these statements is;CORRECT?;a.;The annual payments would be larger if the interest rate were lower.;b.;If the loan were amortized over 10 years rather than 7 years, and if the;interest rate were the same in either case, the first payment would include;more dollars of interest under the 7-year amortization plan.;c.;The proportion of each payment that represents interest as opposed to;repayment of principal would be higher if the interest rate were lower.;d.;The proportion of each payment that represents interest versus repayment of;principal would be higher if the interest rate were higher.;e.;The proportion of interest versus principal repayment would be the same for;each of the 7 payments;Q9;Your bank account pays a 6% nominal;rate of interest. The interest is compounded quarterly. Which of the following;statements is CORRECT?;a.;The periodic rate of interest is 1.5% and the effective rate of interest is;greater than 6%.;b.;The periodic rate of interest is 3% and the effective rate of interest is;6%.;c.;The periodic rate of interest is 1.5% and the effective rate of interest is;3%.;d.;The periodic rate of interest is 6% and the effective rate of interest is;also 6%.;e.;The periodic rate of interest is 6% and the effective rate of interest is;greater than 6%;Problem 4-28;PV and Effective Annual Rate;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 $875 each. Your money is now invested in a bank that pays an 6%;nominal (quoted) interest rate but with quarterly compounding. You regard the;securities as being just as safe, and as liquid, as your bank deposit, so your;required effective annual rate of return on the securities is the same as that;on your bank deposit. You must calculate the value of the securities to decide;whether they are a good investment. What is their present value to you? Round;your answer to the nearest cent.;$;Problem 4-30;Loan Amortization;Your company is planning to borrow;$2,000,000 on a 7-year, 11%, annual payment, fully amortized term loan. What;fraction of the payment made at the end of the second year will represent;repayment of principal? Round your answer to two decimal places.;%;Problem 4-15;Effective Rate of Interest;Find the interest rate (or rates of;return) for each of the following situations. Round your answers to two decimal;places.;You borrow $700 and promise to pay back $728 at the end;of 1 year.%You lend $700 and receive a promise to be paid $728 at;the end of 1 year. %You borrow $95,000 and promise to pay back $156,788 at;the end of 11 years.%You borrow $8,000 and promise to make payments of;$2,444.9 at the end of each year for 4 years.%;Problem 4-19;Effective versus Nominal Interest Rates;Universal Bank pays 4% interest;compounded annually, on time deposits. Regional Bank pays 3%, compounded;quarterly.;Based on effective interest rates, in which bank would;you prefer to deposit your money?I. You are indifferent between the banks and your decision will be;based upon which one offers you a gift for opening an account.II. You would choose Universal Bank because its EAR (or EFF%) is;higher.III.You would choose Regional Bank because its nominal interest;rate is higher. IV.You would choose Universal Bank because its nominal interest;rate is higher.V. You would choose Regional Bank because its EAR (or EFF%) is;higher.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 any interest.I. If funds must be left on deposit until the end of the;compounding period (1 year for Universal Bank and 3 months for Regional;Bank), and you have no intentions of making a withdrawal during the year;then Regional Bank might be preferable.II. If funds must be left on deposit until the end of the;compounding period (1 year for Universal Bank and 3 months for Regional;Bank), and you think there is a high probability that you will make a;withdrawal during the year, then Universal Bank might be preferable.III.If funds must be left on deposit until the end of the;compounding period (3 months for Universal Bank and 1 year for Regional;Bank), and you think there is a high probability that you will make a withdrawal;during the year, then Universal Bank might be preferable.IV.If funds must be left on deposit until the end of the;compounding period (1 year for Universal Bank and 3 months for Regional;Bank), and you think there is a high probability that you will make a;withdrawal during the year, then Regional Bank might be preferable.V. If funds must be left on deposit until the end of the;compounding period (3 months for Universal Bank and 1 year for Regional;Bank), and you think there is a high probability that you will make a;withdrawal during the year, then Regional Bank might be preferable.;Problem 4-24;Required Lump-Sum Payment;To complete your last year in;business school and then go through law school, you will need $20,000 per year;for 4 years, starting next year (that is, you will need to withdraw the first;$20,000 one year from today). Your rich uncle offers to put you through school;and he will deposit in a bank paying 6.44% interest a sum of money that is;sufficient to provide the 4 payments of $20,000 each. His deposit will be made;today.;How large must the deposit be? Round your answer to the;nearest cent.;$ How much will be in the account immediately after you;make the first withdrawal? Round your answer to the nearest cent.;$;How much will be in the account immediately after you make the last;withdrawal? Round your answer to the nearest cent.;$

 

Paper#51267 | Written in 18-Jul-2015

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