Question
1- Larry Davis borrows $73,000 at 12 percent interest toward the purchase of a home. His mortgage is for 30 years. UseAppendix Dfor an approximate
1- Larry Davis borrows $73,000 at 12 percent interest toward the purchase of a home. His mortgage is for 30 years. UseAppendix Dfor an approximate answer, but calculate your final answer using the formula and financial calculator methods.
a.How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.)
b.How much interest will he pay over the life of the loan?
c.How much should he be willing to pay to get out of a 12 percent mortgage and into a 10 percent mortgage with 30 years remaining on the mortgage? Assume current interest rates are 10 percent. Carefully consider the time value of money. Disregard taxes.
2- If you invest $9,300 per period for the following number of periods, how much would you have in each of the following instances? UseAppendix Cfor an approximate answer, but calculate your final answer using the formula and financial calculator methods.
a.In 11 years at 8 percent?
b.In 40 years at 7 percent?
3- Al Rosen invests $23,000 in a mint condition 1952 Mickey Mantle Topps baseball card. He expects the card to increase in value 11 percent per year for the next 12 years.
How much will his card be worth after 12 years? UseAppendix Afor an approximate answer, but calculate your final answer using the formula and financial calculator methods.
4- Carrie Tune will receive $32,500 for the next 15 years as a payment for a new song she has written. UseAppendix Dfor an approximate answer, but calculate your final answer using the formula and financial calculator methods.
a.What is the present value of these payments if the discount rate is 17 percent?
5-Maxwell Communications paid a dividend of $0.80 last year. Over the next 12 months, the dividend is expected to grow at 10 percent, which is the constant growth rate for the firm (g). The new dividend after 12 months will representD1. The required rate of return (Ke) is 17 percent.
Compute the price of the stock (P0)
6- Les Moore retired as president of Goodman Snack Foods Company but is currently on a consulting contract for $58,000 per year for the next 11 years. UseAppendix BandAppendix Dfor an approximate answer, but calculate your final answer using the formula and financial calculator methods.
a.If Mr. Moore's opportunity cost (potential return) is 10 percent, what is the present value of his consulting contract?
b.Assuming Mr. Moore will not retire for two more years and will not start to receive his 11 payments until the end of the third year, what would be the value of his deferred annuity?
7- You will receive $6,500 three years from now. The discount rate is 8 percent.
a.What is the value of your investment two years from now? Multiply $6,500 (1/1.08) or divide by 1.08 (one year's discount rate at 8 percent).
b.What is the value of your investment one year from now? Multiply your answer to part a by (1/1.08).
c.What is the value of your investment today? Multiply your answer to part b by (1/1.08)
d.Use the formulaPV = FV (1/(1+i)n)to find the present value of $6,300 received three years from now at 8 percent interest.
8- If you invest $18,500 today, how much will you have in each of the following instances? UseAppendix Aas an approximate answer, but calculate your final answer using the formula and financial calculator methods.
a.In 9 years at 10 percent?
b.In 17 years at 10 percent?
c.In 18 years at 10 percent?
d.In 20 years at 10 percent (compounded semiannually)?
9- North Pole Cruise Lines issued preferred stock many years ago. It carries a fixed dividend of $9 per share. With the passage of time, yields have changed from the original 11 percent to 8 percent (yield is the same as required rate of return).
a.What was the original issue price?
b.What is the current value of this preferred stock?
10- Beverly Hills started a paper route on January 1. Every three months, she deposits $850 in her bank account, which earns 8 percent annually but is compounded quarterly. Four years later, she used the entire balance in her bank account to invest in an investment at 7 percent annually.
How much will she have after three more years? UseAppendix AandAppendix Cfor an approximate answer, but calculate your final answer using the formula and financial calculator methods.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Design And Analysis Of Experiments
Authors: Douglas C., Montgomery
5th Edition
978-0471316497, 0471316490
