First, Gary has to select a bank or banks to meet the financial needs of Gulf Shores He has been approached by two local banks Sun Trust and Banksouth about interest rates they offer on a savings account and certificate of deposit (CD) as well as the rate charges on the loan Second, a wealthy patient decided to make a series of donations to the facility She will donate $75,000 a year for six years (t 1 through t 6, where t time) and $150,000 annually for the following six years (t 7 through t 12) The first deposit will be made a year from today In addition, she has just written a check for $250,000, which Gary will invest immediately (t 0) Gary will invest all of the donations in a CD as they become available CDs are generally offered in maturities of from six months to ten years, and interest can be handled in one of two ways the investor (buyer) can receive periodic interest payments, or the interest can automatically be reinvested in the CD In the latter case, the buyer receives no interest during the life of the CD but receives the accumulated interest plus the principal amount at maturity Because the goal of this investment is to accumulate for future use, as opposed to generating current income, all interest earned on the CD would be reinvested Third, Gulf Shores may lunch substantial building renovations In this circumstance, it would be forced to borrow $250,000 from a bank Gary is considering two options for a term loan A five year term loan that would be repaid in equal annual installments, with the first payment due at the end of Year 1 Gary hopes to pay off the loan early at the end of Year 3 A seven year loan that would be repaid in annual installments of differing amounts, with the first payment due at the end of Year 1 For the first three years of the loan, the annual installments would be projected cash surpluses ($25,000 at the end of Year 1, $50,000 at the end of Year 2, and $75,000 at the end of year 3) For the final four years of the loan, the annual installments would be fixed but currently unspecified cash flow, X, at the end of each year from Year 4 through Year7 Finally, Gulf Shores has a board designated building fund to pay for projected facility renovations in eight years and lasting for four years (at t 8,9,10 and 11) Current building renovation costs are estimated to be $14,500,000 a year, but they are expected to increase at the rate of 3 5 percent a year So far, Gulf Shores has accumulated $15,000,000 (at t 0) Garys long run financial plan is to add $5,000,000 in each of the next four years (at t 1, 2, 3, and 4) Then, he plans to make equal contributions in each of the following three years (t 5, 6, and 7) All of the decisions Gary faces involves time value analysis INTEREST RATE ON THREE FINANICAL PRODUCTS Bank Product Compounding Nominal Interest Rate SunTrust Savings account Daily 4 00 Certificate of deposit Monthly 6 00 Term loan Quarterly 8 00 Banksouth Savings account Weekly 4 10 Certificate of deposit Annually 6 10 Term loan Semiannually 8 06 QUESTIONS PLEASE give full solutions with answers 1 Which bank should Gary choose for a saving account, which bank for a certificate of deposit, and which bank for a term loan 2 Gary will invest the donations from a wealthy investor in CDs How much will the Center have accumulated on the day of the last donation (Use the CD interest rate offered by the bank you selected for a CD in question 1 ) 3 If the Center takes out a 5 year term loan that would be repaid in equal annual installments, how much will it owe to BankSouth if Gary decides to pay off the loan early, at the end of the third year (Use the term loan interest rate offered by the bank you selected for a term loan in question 1 ) 4 If the Center takes out a 7 year term loan that would be repaid in different annual installments (with the first payment due at the end of year one), how much would the fixed annual installment be at the end of each year from Year 4 through Year 7 (Use the term loan interest rate offered by the bank you selected for a term loan in question 1 )

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First, Gary has to select a bank or banks to meet the financial needs of Gulf Shores. He has been approached by two local banks

First, Gary has to select a bank or banks to meet the financial needs of Gulf Shores. He has been approached by two local banks Sun Trust and Banksouth about interest rates they offer on a savings account and certificate of deposit (CD) as well as the rate charges on the loan.

Second, a wealthy patient decided to make a series of donations to the facility. She will donate $75,000 a year for six years (t = 1 through t = 6, where t = time) and $150,000 annually for the following six years (t = 7 through t =12). The first deposit will be made a year from today. In addition, she has just written a check for $250,000, which Gary will invest immediately (t = 0). Gary will invest all of the donations in a CD as they become available. CDs are generally offered in maturities of from six months to ten years, and interest can be handled in one of two ways: the investor (buyer) can receive periodic interest payments, or the interest can automatically be reinvested in the CD. In the latter case, the buyer receives no interest during the life of the CD but receives the accumulated interest plus the principal amount at maturity. Because the goal of this investment is to accumulate for future use, as opposed to generating current income, all interest earned on the CD would be reinvested.

Third, Gulf Shores may lunch substantial building renovations. In this circumstance, it would be forced to borrow $250,000 from a bank. Gary is considering two options for a term loan:

A five - year term loan that would be repaid in equal annual installments, with the first payment due at the end of Year 1. Gary hopes to pay off the loan early at the end of Year 3.
A seven- year loan that would be repaid in annual installments of differing amounts, with the first payment due at the end of Year 1. For the first three years of the loan, the annual installments would be projected cash surpluses ($25,000 at the end of Year 1, $50,000 at the end of Year 2, and $75,000 at the end of year 3). For the final four years of the loan, the annual installments would be fixed but currently unspecified cash flow, X, at the end of each year from Year 4 through Year7.

Finally, Gulf Shores has a board designated building fund to pay for projected facility renovations in eight years and lasting for four years (at t = 8,9,10 and 11). Current building renovation costs are estimated to be $14,500,000 a year, but they are expected to increase at the rate of 3.5 percent a year. So far, Gulf Shores has accumulated $15,000,000 (at t = 0). Garys long run financial plan is to add $5,000,000 in each of the next four years (at t = 1, 2, 3, and 4).Then, he plans to make equal contributions in each of the following three years (t = 5, 6, and 7).

All of the decisions Gary faces involves time value analysis.

INTEREST RATE ON THREE FINANICAL PRODUCTS

Bank Product Compounding Nominal Interest Rate

SunTrust Savings account Daily 4.00%

Certificate of deposit Monthly 6.00%

Term loan Quarterly 8.00%

Banksouth Savings account Weekly 4.10%

Certificate of deposit Annually 6.10%

Term loan Semiannually 8.06%

QUESTIONS: PLEASE give full solutions with answers.

1. Which bank should Gary choose for a saving account, which bank for a certificate of deposit, and which bank for a term loan?

2. Gary will invest the donations from a wealthy investor in CDs. How much will the Center have accumulated on the day of the last donation? (Use the CD interest rate offered by the bank you selected for a CD in question 1.)

3. If the Center takes out a 5-year term loan that would be repaid in equal annual installments, how much will it owe to BankSouth if Gary decides to pay off the loan early, at the end of the third year? (Use the term loan interest rate offered by the bank you selected for a term loan in question 1.)

4. If the Center takes out a 7-year term loan that would be repaid in different annual installments (with the first payment due at the end of year one), how much would the fixed annual installment be at the end of each year from Year 4 through Year 7? (Use the term loan interest rate offered by the bank you selected for a term loan in question 1.)