Question # 2 (Problem 5:32) MINDTAP

IRA Investments develops retirement programs for individuals. You are 35 years old and plan to retire on your 60th birthday. You want to establish a plan with IRA that will require a series of equal, annual, end-of-year deposits into the retirement account. The first deposit will be made one year from today on your 36th birthday. The final payment on the account will be made on your 60th birthday. The retirement plan will allow you to withdraw $110,000 per year for 20 years, with the first withdrawal on your 61st birthday. Also, at the end of the 20th year, you wish to withdraw an additional $230,000. The retirement account promises to earn 16 percent annually. What periodic payment must be made into the account to achieve your retirement objective? Use Table II, Table III, and Table IV or a financial calculator to answer the question. Round your answer to the nearest dollar.

QUESTION #3

Torbet Fish Packing Company wants to accumulate enough money over the next 8 years to pay for the expected replacement of its digitalized, automated scaling machine. The new machine is expected to cost $190,000 in 8 years. Torbet currently has $12,000 that it plans to invest over the next 8 years to help pay for the new machine. Torbet wants to put away an equal, end-of-year amount into a sinking fund investment account at the end of each of the next 8 years. Earnings on all of the investments are expected to be 5 percent for the first four years and 6 percent thereafter. What equal, end-of-year amount must Torbet save each year over the next 8 years to meet these needs? Use Table I and Table III or a financial calculator to answer the question. Round your answer to the nearest dollar.

QUESTION #4

Determine the value of a share of DuPont Series A $6 cumulative preferred stock, no par, to an investor who requires a 8 percent rate of return on this security. The issue is callable at $110 per share plus accrued dividends. However, the issue is not expected to be called at any time in the foreseeable future. Round your answer to the nearest cent.

QUESTION #5

Hooks Athletics, Inc., has outstanding a preferred stock with a par value of $20 that pays a dividend of $1.00. The preferred stock is redeemable at the option of the stockholder in 10 years at a price equal to $20. The stock may be called for redemption by the company in 15 years at a price of $24. (Any stock that is not redeemed at the end of 10 years can be expected to be called by the company in 15 years.) If you know that investors require a 11 percent pretax rate of return on this preferred stock, what is the current market value of this preferred stock? Use Table II and Table IV to answer the question. Round your answer to the nearest cent.

QUESTION #6

Dooley, Inc., has outstanding $50 million (par value) bonds that pay an annual coupon rate of interest of 8 percent. Par value of each bond is $1,000. The bonds are scheduled to mature in 19 years. Because of Dooleys increased risk, investors now require a 15 percent rate of return on bonds of similar quality with 19 years remaining until maturity. The bonds are callable at 113 percent of par at the end of 10 years. Use Table II and Table IV to answer the questions. Round your answers to the nearest dollar.

1. What price would the bonds sell for assuming investors do not expect them to be called? $
2. What price would the bonds sell for assuming investors expect them to be called at the end of 10 years? $

QUESTION # 7

Zabberer Corporation bonds pay a coupon rate of interest of 11 percent annually and have a maturity value of $1,000. The bonds are scheduled to mature at the end of 13 years. The company has the option to call the bonds in 9 years at a premium of 12 percent above the maturity value. You believe the company will exercise its option to call the bonds at that time. If you require a pretax return of 7 percent on bonds of this risk, how much would you pay for one of these bonds today? Use Table II and Table IV to answer the question. Round your answer to the nearest dollar.

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QUESTION #8

Creative Financing, Inc., is planning to offer a $1,000 par value 15-year maturity bond with a coupon interest rate that changes every 5 years. The coupon rate for the first 5 years is 10 percent, 12 percent for the next 5 years, and 12.25 percent for the final 5 years. If you require an 13 percent rate of return on a bond of this quality and maturity, what is the maximum price you would pay for the bond? (Assume interest is paid annually at the end of each year.) Use Table II and Table IV to answer the question. Round your answer to the nearest dollar.

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QUESTION # 10

Susan Robinson is planning for her retirement. She is 39 years old today and would like to have $450,000 when she turns 55. She estimates that she will be able to earn a 9 percent rate of return on her retirement investments over time; she wants to set aside a constant amount of money every year (at the end of the year) to help achieve her objective. How much money must Robinson invest at the end of each of the next 16 years to realize her goal of $450,000 at the end of that time? Use Table III or a financial calculator to answer the question. Round your answer to the nearest cent.

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QUESTION # 11

What would you be willing to pay for a $1,000 bond paying $50 interest at the end of each year and maturing in 24 years if you wanted the bond to yield the following rates of return? Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest cent.

(Note: At maturity, the bond will be retired and the holder will receive $1,000 in cash. Bonds are typically issued with $1,000 face, or par, values. The actual market value at any point in time will tend to rise as interest rates fall and fall as interest rates rise.)

1. 8 percent $

2. 12 percent $

3. 16 percent $

QUESTION #12

A life insurance company offers loans to its policyholders against the cash value of their policies at a (nominal) annual interest rate of 7 percent, compounded quarterly. Determine the effective annual percentage interest rate on these loans. Round your answer to two decimal places.

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QUESTION #13

Two investment opportunities are open to you: Investment 1 and Investment 2. Each has an initial cost of $15,000. Assuming that you desire a 10 percent return on your initial investment, compute the net present value of the two alternatives. Use Table II or a financial calculator to answer the question. Round your answers to the nearest dollar.

Investment 1		Investment 2
Cash Flows	Year	Cash Flows	Year
$7,000	1	$13,000	1
$9,000	2	$11,000	2
$11,000	3	$9,000	3
$13,000	4	$7,000	4

Investment 1: $

Investment 2: $

Which alternative is more attractive?

QUESTION # 14

An investment promises to pay $7,000 at the end of each year for the next five years and $5,000 at the end of each year for years 6 through 10. Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest cent.

1. If you require a 14 percent rate of return on an investment of this sort, what is the maximum amount you would pay for this investment? $

2. Assuming that the payments are received at the beginning of each year, what is the maximum amount you would pay for this investment, given a 14 percent required rate of return?

QUESTION #15

You are considering investing in a bond that matures 24 years from now (the par value of the bond is $1,000). It pays an annual end-of-year coupon rate of interest of 7.65 percent, or $76.5 per year. The bond currently sells for $819. Your marginal income tax rate (applied to interest payments) is 28 percent. Capital gains are taxed at the same rate as ordinary income. What is your after-tax rate of return if you buy this bond today and hold it until maturity? Use Table II and Table IV or a financial calculator to answer the question. Round your answer to the nearest whole number.

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QUESTION # 16

Your parents have discovered a $1,000 bond at the bottom of their safe-deposit box. The bond was given to you by your late great-aunt Hilda on your fourth birthday. The bond pays interest at a rate of 5 percent per annum, compounded annually. Interest accumulates and is paid at the time the bond is redeemed. You are now 24 years old. What is the current worth of the bond (principal plus interest)? Use Table I or a financial calculator to answer the question. Round your answer to the nearest dollar.

$