1.

You want to buy a car, and a local bank will lend you $35,000. The loan would be fully amortized over 3 years (36 months), and the nominal interest rate would be 15%, with interest paid monthly. What is the monthly loan payment? Do not round intermediate calculations. Round your answer to the nearest cent.

$

What is the loan's EFF%? Do not round intermediate calculations. Round your answer to two decimal places.

%

2.

Find the following values, using the equations, and then work the problems using a financial calculator to check your answers. Disregard rounding differences. (Hint: 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.) Do not round intermediate calculations. Round your answers to the nearest cent.

An initial $600 compounded for 1 year at 7.5%.

$

An initial $600 compounded for 2 years at 7.5%.

$

The present value of $600 due in 1 year at a discount rate of 7.5%.

$

The present value of $600 due in 2 years at a discount rate of 7.5%.

$

3.

Use both the TVM equations and a financial calculator to find the following values. (Hint: 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.) Do not round intermediate calculations. Round your answers to the nearest cent.

An initial $400 compounded for 10 years at 7%.

$

An initial $400 compounded for 10 years at 14%.

$

The present value of $400 due in 10 years at a 7% discount rate.

$

The present value of $400 due in 10 years at a 14% discount rate.

$

4.

Future Value of an Annuity

Find the future value of the following annuities. The first payment in these annuities is made at the end of Year 1, so they are ordinary annuities. (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 Begin Mode, press FV, and find the FV of the annuity due.) Do not round intermediate calculations. Round your answers to the nearest cent.

$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.

Future value of $400 per year for 10 years at 6%: $

Future value of $200 per year for 5 years at 3%: $

Future value of $400 per year for 5 years at 0%: $

5.

Find the present value of the following ordinary annuities. (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 Begin Mode, press PV, and find the PV of the annuity due.) Do not round intermediate calculations. Round your answers to the nearest cent.

$600 per year for 10 years at 8%.

$

$300 per year for 5 years at 4%.

$

$600 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.

Present value of $600 per year for 10 years at 8%: $

Present value of $300 per year for 5 years at 4%: $

Present value of $600 per year for 5 years at 0%: $

6.

a. Find the present values of the following cash flow streams. The appropriate interest rate is 9%. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, when working with the calculator's cash flow register, you must enter CF₀ = 0. Note also that it is quite easy to work the problem with Excel, using procedures described in the Ch04 Tool Kit.xlsx.) Do not round intermediate calculations. Round your answers to the nearest cent.

Year	Cash Stream A	Cash Stream B
1	$100	$300
2	400	400
3	400	400
4	400	400
5	300	100

Stream A: $

Stream B: $

b. What is the value of each cash flow stream at a 0% interest rate? Round your answers to the nearest dollar.

Stream A $

Stream B $

7.

Future Value for Various Compounding Periods

Find the amount to which $450 will grow under each of the following conditions. Do not round intermediate calculations. Round your answers to the nearest cent.

6% compounded annually for 5 years.

$

6% compounded semiannually for 5 years.

$

6% compounded quarterly for 5 years.

$

6% compounded monthly for 5 years.

$

8.

Present Value for Various Compounding Periods

Find the present value of $325 due in the future under each of the following conditions. Do not round intermediate calculations. Round your answers to the nearest cent.

12% nominal rate, semiannual compounding, discounted back 5 years.

$

12% nominal rate, quarterly compounding, discounted back 5 years.

$

12% nominal rate, monthly compounding, discounted back 1 year.

$

9.

Future Value of an Annuity for Various Compounding Periods

Find the future values of the following ordinary annuities.

FV of $800 each 6 months for 8 years at a nominal rate of 16%, compounded semiannually. Do not round intermediate calculations. Round your answer to the nearest cent.

$

FV of $400 each 3 months for 8 years at a nominal rate of 16%, compounded quarterly. Do not round intermediate calculations. Round your answer to the nearest cent.

$

1a.

JG Asset Services is recommending that you invest $1,425 in a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually. How much will you have when the CD matures?

Select the correct answer.

a. $1,686.95

b. $1,703.45

c. $1,708.95

d. $1,692.45

e. $1,697.95

2a.

How much would $4,175 due in 50 years be worth today if the discount rate were 7.5%?

Select the correct answer.

a. $103.86

b. $115.06

c. $106.66

d. $112.26

e. $109.46

3a.

Brockman Corporation's earnings per share were $3.50 last year, and its growth rate during the prior 5 years was 8.4% per year. If that growth rate were maintained, how many years would it take for Brockman's EPS to triple?

Select the correct answer.

a. 10.02

b. 15.42

c. 8.22

d. 13.62

e. 11.82

4a.

Your friend offers to pay you an annuity of $7,000 at the end of each year for 3 years in return for cash today. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Select the correct answer.

a. $18,901.73

b. $18,877.43

c. $18,885.53

d. $18,909.83

e. $18,893.63

5a.

A new investment opportunity for you is an annuity that pays $3,050 at the beginning of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Select the correct answer.

a. $8,622.88

b. $8,681.28

c. $8,666.68

d. $8,652.08

e. $8,637.48

6a.

Suppose you earned a $370,000 bonus this year and invested it at 8.25% per year. How much could you withdraw at the end of each of the next 20 years?

Select the correct answer.

a. $38,389.12

b. $38,395.52

c. $38,376.32

d. $38,382.72

e. $38,369.92

7a.

Suppose you just won the state lottery, and you have a choice between receiving $3,550,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.

Select the correct answer.

a. 3.01%

b. 4.01%

c. 2.51%

d. 3.51%

e. 4.51%

8a.

What's the present value of $19,000 discounted back 5 years if the appropriate interest rate is 9%, compounded semiannually?

Select the correct answer.

a. $12,228.43

b. $12,216.03

c. $12,222.23

d. $12,234.63

e. $12,240.83

9a.

American Express and other credit card issuers must by law print the Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 20.50%, with interest paid monthly, what is the card's EFF%?

Select the correct answer.

a. 20.64%

b. 22.54%

c. 18.74%

d. 24.44%

e. 26.34%

10a.

Billy Thornton borrowed $105,000 at a rate of 7.25%, simple interest, with interest paid at the end of each month. The bank uses a 360-day year. How much interest would Billy have to pay in a 30-day month?

Select the correct answer.

a. $640.38

b. $634.38

c. $631.38

d. $637.38

e. $628.38