Problem 5-16

Present value of a perpetuity

What is the present value of a $600 perpetuity if the interest rate is 7%?

If interest rates doubled to 14%, what would its present value be?

Problem 5-17 Effective interest rate

You borrow $90,000; the annual loan payments are $13,707.02 for 30 years. What interest rate are you being charged?

Problem 5-18 Present value for various discounting periods

Find the present value of $600 due in the future under each of these conditions:

11% nominal rate, semiannual compounding, discounted back 9 years.

11% nominal rate, quarterly compounding, discounted back 9 years.

11% nominal rate, monthly compounding, discounted back 1 year.

Problem 5-19 Future value of an annuity

Find the future values of the following ordinary annuities:

FV of $700 paid each 6 months for 5 years at a nominal rate of 5% compounded semiannually.

FV of $350 paid each 3 months for 5 years at a nominal rate of 5% compounded quarterly.

Problem 5-20 PV and loan eligibility

You have saved $5,000 for a down payment on a new car. The largest monthly payment you can afford is $400. The loan will have a 11% APR based on end-of-month payments.

What is the most expensive car you can afford if you finance it for 48 months?

What is the most expensive car you can afford if you finance it for 60 months?