Question
1.Future Value: Ordinary Annuity versus Annuity Due What is the future value of a 3%, 5-year ordinary annuity that pays $250 each year? Round your
1.Future Value: Ordinary Annuity versus Annuity Due
What is the future value of a 3%, 5-year ordinary annuity that pays $250 each year? Round your answer to the nearest cent. $
If this were an annuity due, what would its future value be? Round your answer to the nearest cent. $
2. Present and Future Value of an Uneven Cash Flow Stream
An investment will pay $100 at the end of each of the next 3 years, $400 at the end of Year 4, $500 at the end of Year 5, and $700 at the end of Year 6. If other investments of equal risk earn 11% annually, what is its present value? Round your answer to the nearest cent. $
What is its future value? Round your answer to the nearest cent. $
3. Annuity Payment and EAR
You want to buy a car, and a local bank will lend you $25,000. The loan would be fully amortized over 6 years (72 months), and the nominal interest rate would be 10%, with interest paid monthly. What is the monthly loan payment? Round your answer to the nearest cent. $
What is the loan's EFF%? Round your answer to two decimal places. %
4. Uneven Cash Flow Stream
- Find the present values of the following cash flow streams. The appropriate interest rate is 12%. Round your answers to the nearest cent. (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 Chapter 4 Tool Kit.)
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 $
- What is the value of each cash flow stream at a 0% interest rate? Round your answers to the nearest cent. Stream A $ Stream B $
5. Future Value of an Annuity for Various Compounding Periods
Find the future values of the following ordinary annuities:
- FV of $800 paid each 6 months for 6 years at a nominal rate of 8%, compounded semiannually. Round your answer to the nearest cent. $
- FV of $400 paid each 3 months for 6 years at a nominal rate of 8%, compounded quarterly. Round your answer to the nearest cent. $
- The annuities described in parts a and b have the same amount of money paid into them during the 6-year period and both earn interest at the same nominal rate, yet the annuity in part b earns more than the one in part a over the 6 years. Why does this occur? -Select-The nominal deposits into the annuity in part (b) are greater than the nominal deposits into the annuity in part (a). The annuity in part (a) is compounded less frequently; therefore, more interest is earned on interest. The annuity in part (a) is compounded more frequently; therefore, more interest is earned on interest. The annuity in part (b) is compounded less frequently; therefore, more interest is earned on interest. The annuity in part (b) is compounded more frequently; therefore, more interest is earned on interest.Item 3
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