Present Value

8-36. What is the amount you have to invest today at 4 percent annual interest to be able to receive $10,000 after

a. 5 years?

b. 10 years?

c. 20 years?

Future Value

8-37. How much money would Alexis Whitney need to deposit in her savings account at Great Western Bank today in order to have $26,850.58 in her account after five years? Assume she makes no other deposits or withdrawals and the bank guarantees a 6 percent annual interest rate, compounded annually.

Solving for a Loan Payment

8-46. A $50,000 loan obtained today is to be repaid in equal annual installments over the next seven years starting at the end of this year. If the annual interest rate is 2 percent, compounded annually, how much is to be paid each year?

8-54. Moe Szyslak comes to you for financial advice. He is considering adding video games to his tavern to attract more customers. The company that sells the video games has given Moe a choice of four different payment options. Which of the following four options would you recommend that Moe choose? Why?

Option 1. Pay $5,900 cash immediately.

Option 2. Pay $6,750 cash in one lump sum two years from now.

Option 3. Pay $800 at the end of each quarter for two years.

Option 4. Pay $1,000 immediately plus $5,250 in one lump sum two years from now.

Moe tells you he can earn 6 percent annual interest, compounded quarterly, on his money. You have no reason to question his assumption.

Cost of Debt and Preferred Stock