1. You plan to buy a security that will pay a $1,000 in 10 years. If the correct discount rate is 10%, what is the most you will pay for the security?

2. Three years ago, you challenged your team to double sales over the next 5 years. At the time the promise was made, sales were $20mil. Now, three years later, they are about to present you the current sales figures. What number would make you feel they are on track to fulfill the challenge?

3. You work for a bank in the mortgage department. A client asks you how much they can borrow if they can afford a mortgage payment of $1,200 per month. The current 30-year fixed rate mortgage has an APR of 6.50%. Your client is also considering a 15-year mortgage that has a current APR of 5.75%. What can your client borrow under the two scenarios? The periodic rate (in this case the monthly rate) is found by dividing the APR by number of periods in a year (in this case 12).

4. What is the present value of a 10-year annuity (i.e. makes 10 payments) that makes $500 payments but doesnt start making payments until 5-years from today? Assume a 10% discount rate.

5. What is the price of AT&Ts preferred stock if it promises to pay a $5 dividend every year in perpetuity if the required rate of return is 9%?

6. P&Gs next dividend is expected to be $1.10 per share paid one year from today. How much are you willing to pay for a share of P&G stock if you expect the dividends to grow at a constant rate of 3% per year and the required rate of return on P&G is 9%?

7. IBMs current dividend (just paid) was $1.00 per share. Dividends are expected to grow at a constant rate of 3% per year. How much will you pay for a share of IBM if the required rate of return on IBM is 10%?

8. You are trying to get your retirement savings in order. You plan to retire in 27 years. For retirement, you calculate that you will need $75,000 per year in todays dollars, and that you will start taking annual withdrawals from the account 27 years from today. To be safe, you assume you will need to make 40 withdrawals (i.e., live 40 years in retirement), and you assume inflation will be 2% per year forever. A) How much do you need in your retirement account one year before your first withdrawal assuming the account earns 8% FIN3717_2020Spring Assignment I per year? B) You plan on contributing a fixed percentage of your salary every year for the next 27 years to achieve your retirement needs with the first contribution made one year from today. If your salary is $100,000 and you expect to get 5% raises each year, what percentage of your salary do you need to save? Again assume your 401k is expected to earn 8% per year.