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Questions and Answers of
Corporate Finance
List five financial planning issues that parents should address when they are expecting a child. Briefly explain why each issue is important.
Caring for an elderly parent, retiring, or the death of spouse can have a major impact on an individual’s daily life as well as on his or her finances. For one of these three events, review the
Financial preparation for at least five of the life events mentions establishing an emergency fund. List the five. In your opinion, an emergency fund would be critical for which of the remaining life
List and briefly describe the twelve basic decisions you must make in order to achieve real wealth.
Calculate the future value of an account after you've contributed $1,000 at the end of each year for 40 years, assuming you can earn 9 percent compounded annually and you don't make a withdrawal
Why is financial planning more important for women than men?
Review the ten financial life events, and identify the ones that mention an emergency fund. Why is an emergency fund of 3 to 6 months' worth of expenses recommended for everyone? Why is it
Why do insurance products play such a critical role when planning for financial life events? Do any of the life events not prompt an insurance review? What insurance products do you consider
Why should you continue to upgrade your skills even after graduation? Name a few methods for upgrading and reinventing your skills in your career field. Estimate the costs associated with these
Review the 12 keys to financial success, noting how many mention financial restraint. How can an understanding of living below your means and financial planning give you the freedom to spend while
Explain whether the following consumer goods are classified as good or bad debt. Explain your rationale.a. Mortgageb. Home equity line of credit to build a new patioc. Student loand. Gap credit
1. The discussion of money issues is the first of a four-step process to help couples successfully manage their finances. The process might be summarized as (a) talk, (b) track, (c) plan and act, and
1. Why is it easy for college students to get and use credit cards? Aside from the obvious impact of "forgoing future consumption" to repay the debt, how can students' credit practices affect their
What amount three years ago is equivalent to $4800 on a date 1 ½ years from now if money earns 8% compounded semiannually during the intervening time?
A $1000 face value compound-interest Series S96 Canada Savings Bond was redeemed on March 14, 2010. What amount did the bond’s owner receive? (Obtain the issue date and the interest rates paid on
On the same date that the Alberta Treasury Branches were advertising rates of 2.25%, 3%, 3.75%, 4.5%, and 6.5% in successive years of their five-year compound-interest Springboard GIC, they offered
Maynard Appliances is holding a “Fifty- Fifty Sale.” Major appliances may be purchased for nothing down and no interest to pay if the customer pays 50% of the purchase price in six months and the
Donnelly Excavating has received two offers on a used backhoe that Donnelly is advertising for sale. Offer 1 is for $10,000 down, $15,000 in 6 months, and $15,000 in 18 months. Offer is for $8000
For the five-year period ended June 30, 2009, the Desjardins Environment Fund had one of the best performances of all diversified Canadian equity funds. It effectively earned a compound annual return
Isaac borrowed $3000 at 10.5% compounded quarterly 3 1/2 years ago. One year ago he made a payment of $1200. What amount will extinguish the loan today?
For the 10-year period ended March 31, 2007, the Phillips, Hager & North (PH&N) Canadian Equity Fund had a compound annual return of 11.3% whereas the PH&N U.S. Equity Fund had a compound annual
Use the data in Table 8.2 to determine the redemption value of a $500 face value compound- interest Series S90 Canada Savings Bond on: a. November 1, 2009. b. April 15, 2010.
Payments of $2400, $1200, and $3000 were originally scheduled to be paid today, 18 months from today, and 33 months from today, respectively. Using 6% compounded quarterly as the rate of return money
Jarmila borrowed $3000, $3500, and $4000 from her grandmother on December 1 in each of three successive years at college. They agreed that interest would accumulate at the rate of 4% com- pounded
If the inflation rate for the next 10 years is 3% per year, what hourly rate of pay in 10 years will be equivalent to $15 per hour today?
A four-year $7000 promissory note bearing interest at 10.5% compounded monthly was discounted 18 months after issue to yield 9.5% compounded quarterly. What were the proceeds from the sale of the
For the 10 years ended December 31, 2008, the annually compounded rate of return on the portfolio of stocks represented by the S&P/ TSX Composite Index was 2.66%. For the same period, the compound
On February 1 of three successive years, Roger contributed $3000, $4000, and $3500, respectively, to his RRSP. The funds in his plan earned 9% compounded monthly for the first year, 8.5% compounded
A loan contract called for a payment after two years of $1500 plus interest (on this $1500 only) at 8% compounded quarterly, and a second payment after four years of $2500 plus interest (on this
Payments of $1800 and $2400 were made on a $10,000 variable-rate loan 18 and 30 months after the date of the loan. The interest rate was 11.5% compounded semiannually for the first two years and
A $6500 loan at 11.25% compounded monthly is to be repaid by three equal payments due 3, 6, and 12 months after the date of the loan. Calculate the size of each payment.
Payments of $2300 due 18 months ago and $3100 due in three years are to be replaced by an equivalent stream of payments consisting of $2000 today and two equal payments due two and four years from
A $1000 face value strip bond has 19 years remaining until maturity. What is its price if the market rate of return on such bonds is 5.9% compounded semiannually? At this market rate of return, what
Two payments of $5000 are scheduled six months and three years from now. They are to be replaced by a payment of $3000 in two years, a second payment in 42 months, and a third payment, twice as large
A five-year, compound-interest GIC purchased for $1000 earns 6% compounded annually. a. How much interest will the GIC earn in the fifth year? b. If the rate of inflation during the five-year term is
To satisfy more stringent restrictions on toxic waste discharge, a pulp mill will have to reduce toxic waste by 10% from the previous year’s level every year for the next five years. What fraction
Three equal payments were made one, two, and three years after the date on which a $10,000 loan was granted at 10.5% compounded monthly. If the balance immediately after the third payment was
If the total interest earned on an investment at 6.6% compounded monthly for 3 1/2 years was $1683.90, what was the original investment?
Four years ago John borrowed $3000 from Arlette. The principal with interest at 10% compounded semiannually is to be repaid six years from the date of the loan. Fifteen months ago, John borrowed
If an investor has the choice between rates of 5.5% compounded semiannually and 5.6% compounded annually for a six-year GIC, which rate should be chosen?
A 1995 study predicted that employment in base metal mining would decline by 3.5% per year for the next five years. What percentage of total base metal mining jobs was expected to be lost during the
At the same time as compound-interest Canada Savings Bonds were being sold with guar- anteed minimum annual rates of 5.25%, 6%, and 6.75% in the first 3 years of their 10-year term, a trust company
Jacques has just been notified that the combined principal and interest on an amount he borrowed 19 months ago at 8.4% compounded monthly is now $2297.78. How much of this amount is principal and how
Accurate Accounting obtained a private loan of $25,000 for five years. No payments were required, but the loan accrued interest at the rate of 9% compounded monthly for the first 2 1/2 years and then
A credit union’s Rate-Climber GIC pays rates of 4%, 5%, and 6% compounded semiannually in successive years of a three-year term. a. What will be the maturity value of $12,000 invested in this
Calculate the periodic rate of interest if the nominal interest rate is 6% compounded: a. Monthly. b. Quarterly. c. Semiannually.
For a nominal rate of 5.9%, determine the compounding frequency if the periodic interest rate is: a. 2.95%. b. 0.4916%. c. 1.475%.
What is the compounding frequency for a nominal rate of 4.7% if the periodic interest rate is: a. 1.175%? b. 0.3916%?
For a nominal rate of 6.75%, determine the compounding frequency if the periodic interest rate is:a. 0.5625%.b. 1.6875%.
Determine the periodic interest rate for a nominal interest rate of 4.8% compounded: a. Semiannually. b. Quarterly. c. Monthly.
What is the periodic rate of interest corresponding to: a. 5.4% compounded quarterly? b. 5.4% compounded monthly?
Explain the difference between“ compounding period” and “compounding frequency.”
Explain the difference between“ nominal rate of interest” and “periodic rate of interest.”
Determine the periodic interest rate for a nominal interest rate of: a. 8% compounded semiannually. b. 8% compounded monthly.
Calculate the nominal interest rate if the periodic rate is: a. 3.6% per half year.b. 1.8% per quarter.c. 0.6% per month.
Determine the nominal rate of interest if the periodic rate is: a. 1.5% per month. b. 1.5% per quarter. c. 1.5% per half year.
Determine the nominal interest rate if the periodic rate is: a. 1.25% per quarter. b. 0.416% per month.
What is the nominal rate of interest if the periodic rate is: a. 0.583% per month? b. 5.8% per year?
Calculate the compounding frequency for a nominal rate of 6.6% if the periodic rate of interest is: a. 1.65%. b. 3.3%. c. 0.55%.
How do you think the growth of a $100 investment over 20 years compares to its growth over 10 years? Assume a return of 8% compounded annually. Will the former be twice as large? Two-and-a-half times
By calculating the maturity value of $100 invested for one year at each rate, determine which rate of return an investor would prefer. a. 12.0% compounded monthly b. 12.1% compounded quarterly c.
What is the maturity value of a $12,000 loan for 18 months at 7.2% compounded quarterly? How much interest is charged on the loan?
What total interest will be earned by $5000 invested at 5.4% compounded monthly for 3 ½ years?
How much more will an investment of $10,000 be worth after 25 years if it earns 9% compounded annually instead of 8% compounded annually? Calculate the difference in dollars and as a percentage of
How much more will an investment of $10,000 be worth after 25 years if it earns 6% compounded annually instead of 5% compounded annually? Calculate the difference in dollars and as a percentage of
How much more will an investment of $10,000 earning 8% compounded annually be worth after 25 years than after 20 years? Calculate the difference in dollars and as a percentage of the smaller maturity
How much more will an investment of $10,000 earning 8% compounded annually be worth after 15 years than after 10 years? Calculate the difference in dollars and as a percentage of the smaller maturity
A $1000 investment is made today. Calculate its maturity values for the six combinations of terms and annually compounded rates of return in the following table.
Suppose an individual invests $1000 at the beginning of each year for the next 30 years. Thirty years from now, how much more will the first $1000 investment be worth than the sixteenth $1000
A $5000 payment due 1 ½ years ago has not been paid. If money can earn 8.25% compounded annually, what amount paid 2 ½ years from now would be the economic equivalent of the missed payment?
What is the future value of $8500 after 5 ½ years if it earns 9.5% compounded quarterly?
What amount three years from now is equivalent to $3000 due five months from now? Assume that money can earn 7.5% compounded monthly.
What amount today is equivalent to $10,000 four years ago, if money earned 5.5% compounded monthly over the last four years?
What amount two years from now will be equivalent to $2300 at a date 1 ½ years ago, if 2 money earns 6.25% compounded semiannually during the intervening time?
Payments of $1300 due today and $1800 due in 1 ¾ years are to be replaced by a single payment 4 years from now. What is the amount of that payment if money is worth 6% compounded quarterly?
Bjorn defaulted on payments of $2000 due 3 years ago and $1000 due 1 ½ years ago. What would a fair settlement to the payee be 1 ½ years from now, if the money 2 could have been invested in
Faisal borrowed $3000, $3500, and $4000 from his father on January 1 of three successive years at college. Faisal and his father agreed that interest would accumulate on each amount at the rate of 5%
Interest rates were at historical highs in the early 1980s. In August of 1981, you could earn 17.5% compounded annually on a five-year term deposit with a Canadian bank. Since then, the interest rate
Mrs. Vanderberg has just deposited $5000 in each of three savings plans for her grandchildren. They will have access to the accumulated funds on their nineteenth birthdays. Their current ages are 12
Nelson borrowed $5000 for 4 ½ years. For the first 2 ½ years, the interest rate on the loan was 8.4% compounded monthly. Then the rate became 7.5% compounded semiannually. What total amount was
Alberto has just invested $60,000 in a five-year Guaranteed Investment Certificate (GIC) earning 6% compounded semiannually. When the GIC matures, he will reinvest its entire maturity value in a new
Will the growth ratio be larger, smaller, or the same if the rate of return is 10% compounded annually instead of 8% compounded annually? After making your choice, calculate the ratio.
An investment of $2500 earned interest at 4.5% compounded quarterly for 1 1/2 years, and then 4.0% compounded monthly for two years. How much interest did the investment earn in the 3 1/2 years?
A debt of $7000 accumulated interest at 9.5% compounded quarterly for 15 months, after which the rate changed to 8.5% compounded semiannually for the next six months. What was the total amount owed
Megan borrowed $1900, 3 1/2 years ago at 7% compounded semiannually. Two years ago she made a payment of $1000. What amount is required today to pay off the remaining principal and the accrued
Duane borrowed $3000 from his grandmother five years ago. The interest on the loan was to be 5% compounded semiannually for the first three years, and 6% compounded monthly thereafter. If he made a
A loan of $4000 at 7.5% compounded monthly requires three payments of $1000 at 6, 12, and 18 months after the date of the loan, and a final payment of the full balance after two years. What is the
Dr. Sawicki obtained a variable-rate loan of $10,000. The lender required payment of at least $2000 each year. After nine months the doctor paid $2500, and another nine months later she paid $3000.
Follow the instructions in the NET @ssets box earlier in this section to access the interactive chart named “Future Value of $100” on the textbook’s Web site. Use the chart to help you answer
Follow the instructions in the NET @ssets box earlier in this section to access the interactive chart named “Future Value of $100” on the textbook’s Web site. Use the chart to help you
What is the maturity value of $5000 invested at 6.0% compounded semiannually for seven years?
To what amount would $12,100 grow after 3 1/4 years if it earned 7.5% compounded 4 monthly?
What was a $4400 investment worth after 6 3/4 years if it earned 5.4% compounded monthly?
Suppose it took x years for an investment to grow from $100 to $200 at a fixed compound rate of return. How many more years will it take to earn an additional a. $100? b. $200? c. $300? In each
For a six-month investment, rank the following interest rates (number one being “most preferred”): 6% per annum simple interest, 6% compounded semiannually, 6% compounded quarterly. Explain your
From a simple inspection, is it possible for an investor to rank the four rates of return in each of Parts (a) and (b)? If so, state the ranking. Give a brief explanation to justify your answer.
Assume that a $10,000 investment can earn 8% compounded quarterly. What will be its future value after: a. 15 years? b. 20 years? c. 25 years? d. 30 years?
How much will $10,000 be worth after 25 years if it earns: a. 6% compounded semiannually? b. 7%compoundedsemiannually? c. 8% compounded semiannually?
To what amount will $10,000 grow after 25 years if it earns: a. 9% compounded annually? b. 9% compounded semiannually? c. 9% compounded quarterly? d. 9% compounded monthly?
$10,000 is invested at 7% compounded annually. Over the next 25 years, how much of the investment’s increase in value represents:a. Earnings strictly on the original $10,000 principal?b.
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