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FINC510 cengage week 3 problem

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Question;Problem 4-7;Present and Future Value of an Uneven Cash Flow Stream;An investment will pay $100 at the;end of each of the next 3 years, $400 at the end of Year 4, $500 at the end of;Year 5, and $800 at the end of Year 6. If other investments of equal risk earn;9% annually, what is its present value? Round your answer to the nearest cent.;$;What is its future value? Round your;answer to the nearest cent.;$;Problem 4-24;Required Lump-Sum Payment;To complete your last year in;business school and then go through law school, you will need $15,000 per year;for 4 years, starting next year (that is, you will need to withdraw the first;$15,000 one year from today). Your rich uncle offers to put you through school;and he will deposit in a bank paying 6.51% interest a sum of money that is;sufficient to provide the 4 payments of $15,000 each. His deposit will be made;today.;How large must the deposit be? Round your answer to the;nearest cent.;$ How much will be in the account immediately after you;make the first withdrawal? Round your answer to the nearest cent.;$;How much will be in the account immediately after you make the last;withdrawal? Round your answer to the nearest cent.;$;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 $650 and promise to pay back $676 at the end;of 1 year.%You lend $650 and receive a promise to be paid $676 at;the end of 1 year. %You borrow $70,000 and promise to pay back $137,648 at;the end of 8 years.%You borrow $10,000 and promise to make payments of;$3,550 at the end of each year for 3 years.%;4. 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.;e.;Hide;Feedback;5. If you deposit money today in an account that pays 5.4% annual interest;how long will it take to double your money? Round your answer to the nearest;whole.;years;Problem 4-31;Nonannual Compounding;It is now January 1. You plan to make a total of 5;deposits of $400 each, one every 6 months, with the first payment being;made today. The bank pays a nominal interest rate of 12% but uses;semiannual compounding. You plan to leave the money in the bank for 15;years. How much will be in your account after 15 years? Round your answer;to the nearest cent.;$ You must make a payment of $1,981.76 in 10 years. To;get the money for this payment, you will make 5 equal deposits, beginning;today and for the following 4 quarters, in a bank that pays a nominal;interest rate of 6% with quarterly compounding. How large must each of the;5 payments be? Round your answer to the nearest cent.;$;Problem 4-30;Loan Amortization;Your company is planning to borrow $2,250,000 on a 3-year, 12%, 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.;Which of the following statements regarding;a 30-year monthly payment amortized mortgage with a nominal interest rate of;10% is CORRECT?;a.;The monthly payments will increase over time.;b. A larger proportion of;the first monthly payment will be interest, and a smaller proportion will;be principal, than for the last monthly payment.;c.;The total dollar amount of interest being paid off each month gets larger;as the loan approaches maturity.;d.;The amount representing interest in the first payment would be higher;if the nominal interest rate were 7% rather than 10%.;e.;Exactly 10% of the first monthly payment represents interest.;Top of Form;Bottom of Form;Top of Form;Bottom of Form;Top of Form;QYour 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 6% and the effective rate of interest is;also 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 1.5% and the effective rate of interest is greater than;6%.;e.;The periodic rate of interest is 6% and the effective rate of interest is;greater than 6%.;Bottom of Form;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.];4.1%.year(s)10%. year(s)17.3%.year(s)100%.year(s);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 $1,050 each. Your money is now invested in a bank that pays an 12%;nominal (quoted) interest rate but with quarterly compounding. You regard the;securities as being just as safe, and as liquid, as your bank deposit, so your;required effective annual rate of return on the securities is the same as that;on your bank deposit. You must calculate the value of the securities to decide;whether they are a good investment. What is their present value to you? Round;your answer to the nearest cent.;$;Problem 4-13;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.);$400 per year for 10 years at 6%.;$ $200 per year for 5 years at 3%.;$ $400 per year for 5 years at 0%.;$ Now rework parts a, b, and c;assuming that payments are made at the beginning of each year, that is, they;are annuities due.;$400 per year for 10 years at 6%.$ $200 per year for 5 years at 3%.;$ $400 per year for 5 years at 0%.;$;Universal Bank pays 3% interest;compounded annually, on time deposits. Regional Bank pays 2%, compounded;quarterly.;Based on effective interest rates, in which bank would;you prefer to deposit your money?I. You would choose Regional Bank because its EAR (or EFF%) is;higher.II. You would choose Regional Bank because its nominal interest;rate is higher.III.You are indifferent between the banks and your decision will;be based upon which one offers you a gift for opening an account.IV.You would choose Universal;Bank because its EAR (or EFF%) is higher.V. You would choose Universal Bank because its nominal interest;rate 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 (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.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 Regional 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 Regional 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 have no intentions of making 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 (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.;Problem 4-6;Future Value: Ordinary Annuity versus Annuity Due;What's the future value of a 4%;9-year ordinary annuity that pays $700 each year? Round your answer to the;nearest cent.;$;If this were an annuity due, what;would its future value be? Round your answer to the nearest cent.;$;Q 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.

 

Paper#51268 | Written in 18-Jul-2015

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