Calculating Future Values (LO1) You have just made your first $5,000 contribution to your RRSP. Assuming you earn an 11% rate of return and make no additional contributions, what will your account be worth when you retire in 45 years? What if you wait ten years before contributing? (Does this suggest an investment strategy?) Calculating Rates of Return (LO3) On February 2, 2016, an investor held some Province of Ontario stripped coupons in a selfadministered RRSP at ScotiaMcLeod, an investment dealer. Each coupon represented a promise to pay $100 at the maturity date on January 13, 2022, but the investor would receive nothing until then. The value of the coupon showed as $76.04 on the investor's screen. This means that the investor was giving up $76.04 on February 2, 2016, in exchange for $100 to be received just less than six years later. a. Based upon the $76.04 price, what rate was the yield on the Province of Ontario strip? b. Suppose that on February 2, 2017 , the security's price was $81.00. If an investor had purchased it for \$76.04 a year earlier and sold it on this day, what annual rate of return would she have earned? c. If an investor had purchased the security at market on February 2, 2017, and held it until it matured, what annual rate of return would she have earned? 8. Calculating Interest Rates (LO3) In 2016, the automobile industry announced the average vehicle selling price was $34,958. Five years earlier, the average price was $27,641. What was the annual percentage increase in vehicle selling price? 2. Calculating Perpetuity Values (LO1) In the previous problem, suppose a sales associate told you the policy costs $475,000. At what interest rate would this be a fair deal? Present Value and Multiple Cash Flows (LO1) Buena Vista Co. has identified an investment project with the following cash flows. If the discount rate is 10%, what is the present value of these cash flows? What is the present value at 18% ? At 24% ? Calculating Annuities (LO1) You are planning to save for retirement over the next 30 years. To do this, you will invest $800 a month in a stock account and \$400 a month in a bond account. The return of the stock account is expected to be 10%, and the bond account will pay 6%. When you retire, you will combine your money into an account with a 9% return. How much can you withdraw each month from your account assuming a 25-year withdrawal period? Assume that the APR is compounded monthly. 1. Calculating the Number of Payments (LO2) You're prepared to make monthly payments of $290, beginning at the end of this month, into an account that pays 7% interest compounded monthly. How many payments will you have made when your account balance reaches $20,000 ? 1. Calculating Perpetuity Values (LO1) The Sutherland Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $30,000 per year forever. If the required return on this investment is 5.8%, how much will you pay for the policy? . Calculating the Number of Periods (LO3) You're trying to save to buy a new \$190,000 BMW 3 series sedan. You have $40,000 today that can be invested at your bank. The bank pays 4.8% annual interest on its accounts. How long will it be before you have enough to buy the car
