Question
1. What is the present value of receiving $ 95.00 at the end of each year forever starting 6.0 years from now. Assume the interest
1. What is the present value of receiving $ 95.00 at the end
of each year forever starting 6.0 years from now.
Assume the interest rate is 8.20% compounded annually.
2. Suppose a security is expected to produce end-of-year cash flows
of $1,400.00 dollars starting 6.0 years from now and continuing
until 37.0 years from now. What is the present value of this
security? Use a discount rate of 16.00% compounded annually.
3. Suppose you want to buy a house that costs $100,000.00. The bank
requires a 15.00% down payment and will charge 13.20% interest
compounded monthly. Suppose you put down the least amount that you
could and borrow the rest from the bank. If you made monthly payments
to the bank for 20.0 years, how much would each payment be?
4. XYZ, Inc., just paid a dividend of $4.00. XYZ, Inc., is
expected to increase their (year-end) dividend 6.00% each
year forever. What should be the price of this stock assuming
that the applicable discount rate is 16.00% compounded annually?
5. Judy and John wish to buy a house in the future. In order to get
the favorable interest rate associated with at least a 20% down
payment, they expect to need $30,000.00. Currently Judy and
John have no money for a down payment. However, at the end of
each month they plan to deposit a certain fixed amount into an
account earning 9.00% interest compounded monthly. How much
money must Judy and John save at the end of each month so they will
have the necessary cash 5.0 years from now?
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