Homework Assignment Ch. 5 TVM, Brigham and Houston Questions 5-4 and 5-7 Problems 5-7, 5-8, 5-20, 5-23 QUESTIONS 5-4 Would you rather have a savings account that pays 5% interest compounded semiannually or one that pays 5% interest compounded daily? Explain. 5-7 Banks and other lenders are required to disclose a rate called the APR. What is this rate? Why did Congress require that it be disclosed? Is it the same as the effective annual rate? If you were comparing the costs of loans from different lenders, could you use their APRs to determine the loan with the lowest effective interest rate? Explain. PROBLEMS 5-8 LOAN AMORTIZATION AND EAR You want to buy a car, and a local bank will lend you $20,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 12% with interest paid monthly. Calculate the EAR, monthly payment and an amortization table for the first month. 5-7 PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM An investment will pay $100 at the end of each of the next 3 years, $200 at the end of Year 4, S300 at the end of Year 5, and S500 at the end of Year 6. If other investments of equal risk earn 8% annually, what is its present value? its future value? 5-20 PV OF A CASH FLOW STREAM A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 10%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are as follows: Contract 1 Contract 2 Contract 3 $3,000,000 $2,000,000 $7,000,000 $3,000,000 $3,000,000 $1,000,000 $3,000,000 $4,000,000 1,000,000 $3,000,000 $5,000,000 $1,000,000 5-23 FUTURE VALUE FOR VARIOUS COMPOUNDING PERIODS Find the amount to which S500 will grow under each of these conditions: a. b. c, d, e, 12% compounded annually for 5 years 12% nnually for 5 vears 12% compounded quarterly for 5 years 12% compounded monthly for 5 years 12% compounded daily for 5 years compounded semia