FIN $502$: Financial Principles

Homework #$2$: Time Value of Money Total Points: $10$ Due Date: February $5$th $,2024$

$1.$ Sandy bought a $$500,000$ house. Paid $20\%$ down payment and financed the remainder. The terms of the

loan are: $30-$year, monthly payments, $9\mathrm{.}00\%$ annual interest rate. Assume no other expenses. What are

her monthly payments?

$2.$ What is her outstanding loan balance at the end of the $8$ th year?

$3.$ What will be her total annual interest payments for the entire $11$th year?

$4.$ Sam inherited $$950,000.$ What annual rate of return must Sam earn to make it worth $$3$ million at the end of

the $10$ th year? $[$Answer Format Example: $15\mathrm{.}15\%$ should be entered as $15\mathrm{.}15.$ Do not type $"\%"$ symbol$]$

$5.$ If Sam invests the inheritance at $17\%$ annual return, how long should he have to wait to make it worth $$2$

million? $[$Answer Example: For $5\mathrm{.}2$ years, Enter $5\mathrm{.}2.$ Do not type in "years"$]$

$6.$ Sandra bought a rental house for $$750,000.$ She rented it for $7$ years at $$3,500/$month$.$ At the end of the

$7$ th year, she sold it for $$900,000.$ What was her average annual rate of return on this

investment? $[$Assume no other cash flows$]$

$7.$ Sonia is buying a project that will return $$120,000/$year for the first $5-$years, and $$130,000/$year for the next

$5-$years. She invests only if she can earn at least a $15\%$ annualized return on any project. What is

the maximum price she should pay to own this project?

$8.$ Sue made a fixed deposit of $$120,000.$ The bank credits her account with interest every month at an

annualized rate of $9\mathrm{.}00\%.$ She will neither deposit nor withdraw any funds from this account for the next $4$

years. What will be the value of her deposit at maturity?

$9.$ Four sports teams offered Sam $5-$year contracts to play football. All four offers include an upfront sign$-$up

bonus, end of year annual payments, and end$-$of$-$the contract termination bonus. Sam wishes to accept the

highest contract amount in terms of today$$s $ value. His opportunity cost is $10\%.$

What is the best offer? $($Compute the $ amount$)$

Team Sign$-$up Bonus Annual Termination Bonus

Cowboys $390,000325,000475,000$

Seahawks $475,000275,000510,000$

Lions $550,000290,000450,000$

Patriots $350,000350,000450,000$

$10.$ Which Team made the best Offer?