Finance Questions

Show all work. Show all financial calculator inputs.

Show all work. Show all financial calculator inputs. 1. You are currently investing your money in a bank account which has a nominal annual rate of 8 percent, compounded monthly. How many years will it take for you to double your money? 2. You are considering buying a new car. The sticker price is $20,000 and you have $4,000 to put toward a down payment. If you can negotiate a nominal annual interest rate of 6 percent and you wish to pay for the car over a 4-year period, what are your monthly car payments? 3. South Penn Trucking is financing a new truck with a loan of $10,000 to be repaid in 5 annual end-of-year installments of $2,504.56. What annual interest rate is the company paying? 4. Suppose you put $1000 into a savings account today, the account pays a nominal annual interest rate of 4 percent, but compounded semiannually. What would your ending balance be 20 years after the initial $1000 deposit was made? 5. Terry Austin is 30 years old and is saving for her retirement. She is planning on making 36 contributions to her retirement account at the beginning of each of the next 36 years. The first contribution will be made today (t = 0) and the final contribution will be made 35 years from today (t = 35). The retirement account will earn a return of 12 percent a year. If each contribution she makes is $3,000, how much will be in the retirement account 35 years from now (t = 35)? 6. Steven just deposited $30,000 in a bank account which has a 12 percent nominal interest rate, and the interest is compounded monthly. Steven also plans to contribute another $30,000 to the account one year (12 months) from now and another $40,000 to the account two years from now. How much will be in the account three years (36 months) from now? 7. You intend to purchase a 10-year, $1,000 face value bond that pays interest of $55 every 6 months. If your nominal annual required rate of return is 10 percent with semiannual compounding, how much should you be willing to pay for this bond? 8. A $1,000 par value bond pays interest of $40 each quarter and will mature in 10 years. If your nominal annual required rate of return is 12 percent with quarterly compounding, how much should you be willing to pay for this bond? 9. Frederickson Office Supplies recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%. How much was the firm's taxable income, or earnings before taxes (EBT)? 10. Assume that you wish to purchase a 30-year bond that has a maturity value of $1,000 and makes semiannual interest payments of $40. If you require a 10 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? 11. Your subscription to Jogger's World Monthly is about to run out and you have the choice of renewing it by sending in the $10 a year regular rate or of getting a lifetime subscription to the magazine by paying $100. Your cost of capital is 7 percent. How many years would you have to live to make the lifetime subscription the better buy? Payments for the regular subscription are made at the beginning of each year. (Round up if necessary to obtain a whole number of years.) 12. Ewert Enterprises' stock currently sells for $30.50 per share. The stock's dividend is projected to increase at a constant rate of 4.50% per year. The required rate of return on the stock, rs, is 10.00%. What is Ewert's expected price 3 years from today? 13. Due to a number of lawsuits related to toxic wastes, a major chemical manufacturer has recently experienced a market reevaluation. The firm has a bond issue outstanding with 10 years to maturity and a coupon rate of 8 percent, with interest paid semiannually. The required nominal rate on this debt has now risen to 16 percent. What is the current value of this bond? (Hint: Assume $1000 par value.)