World University of Bangladesh

Course Title: Introduction to Business Finance

Course ID: FIN 602

Assignment

Submitted to
Md. Iftekharul Islam Bhuiya
Assistant Professor

Of
World School of Business
World University of Bangladesh

Submitted by
Fuad Naser Khan
Roll: 4384
Batch: 72d
Program: BBA
Student mail: 0121724384@student.wub.edu.bd

World University of Bangladesh

Date of Submission: 8 December 2022

Q.1. Explain why this statement is true: A dollar in hand today is worth more than a dollar to
be received next year.

ANSWER: "A dollar received today is worth more than a dollar received tomorrow. “It’s true
what was said regarding time and money. Let's now assess the offered statement in light of
the instructions in the question. As time passes, money loses purchasing power, and prices
change generally. this is referred to as inflation. Changes in price levels are reflected in
interest rates. Instead, then keeping their money idle, they invest it and pay interest on it.
This is one of the reasons why a dollar now is worth more than it will be in the future.
Consider the following example for clarification: A $1,000 asset is kept in cash and is not
invested. Over the coming days, a dollar's value decreases. He can earn interest that can
keep up with inflation if he deposits his money in a savings account with a bank. The
individual should invest his money in a savings account or another asset with growth
potential in order to prevent this. equivalent amount in future dollars of a dollar. It is best to
spend money now while earning interest. It is clear, then, that a dollar earned now is worth
more than a dollar earned tomorrow.
Q.3. Suppose you currently have $2,000 and plan to purchase a 3-year certificate of deposit
(CD)that pays 4% interest compounded annually. How much will you have when the CD
matures? How would your answer change If the interest rate were 5% or 6% or 20%?
($2,249.73; $2,315.25; $2,382.03; $3,456.00)
ANSWER:
Q.4. A company’s sales in 2008 were $100 million. If sales grow at 8%, what will they be 10
years later, in 2018? ($215.89 million)
Answer;

Q.6. Suppose a U.S. government bond promises to pay $2,249.73 three years from now. If
the going interest rate on three-year government bonds is 4%, how much is the bond worth
today? How would your answer change if the bond matured in 5 years rather than 3? What
if the interest rate on the 5-year bond was 6% rather than 4%? ($2,000; $1,849.11;
$1,681.13)
ANSWER:
Q.8. The U.S. Treasury offers to sell you a bond for $585.43. No payments will be made until
the bond matures 10 years from now, at which time it will be redeemed for $1,000. What
interest rate would you earn if you bought this bond for $585.43? What rate would you earn
if you could buy the bond for $550? for $600? (5.5%; 6.16%; 5.24%)
ANSWER:

Q.10. What’s the difference between an ordinary annuity and an annuity due?
Answer: A period-ending annuity is referred to as a "ordinary annuity." The term "annuity
due" describes annuity that occurs at the start of a period. Ordinary annuity: The annuity
that is paid at the end of each period is referred to as the "ordinary annuity". Mortgage
payments on a home loan serve as an example of a typical annuity. At the end of each
month, the borrower pays the EMI. An annuity is a payment that is made at the beginning of
each pre-agreed-upon interval of time. An example of an annuity due is the premium for
insurance, which the policyholder pays at the beginning of each defined period while
receiving the benefit afterwards.
Q.12. For an ordinary annuity with five annual payments of $100 and a 10% interest rate,
how many years will the first payment earn interest? What will this payment’s value be at
the end? (4years, $146.41)
ANSWER:

Q.13. Assume that you plan to buy a car 5 years from now, and you estimate that you can
save $2,500 per year. You plan to deposit the money in a bank that pays 4% interest, and
you will make the first deposit at the end of the year. How much will you have after 5 years?
How will your answer change if the interest rate is increased to 6% or lowered to 3%?
($13,540.81; $14,092.73;$13,272.84)
ANSWER:
Q.14. Why does an annuity due always have a higher future value than an ordinary annuity?
ANSWER: When an annuity is valued ordinarily, payments begin at the end of each period.
When an annuity is valued according to its due date, payments begin at the beginning of
each period. There will be a one-period interest difference between the two values since
there is a one-period gap between the value of the conventional annuity and the value of
the annuity due. It will also have an additional one-period interest value on top of the value
of the regular annuity because the annuity due value starts at the start of each period. The
value of the annuity payable will always be higher than the value of a conventional annuity
due to one-period interest disparities.
Q.15. If you calculated the value of an ordinary annuity, how could you find the value of the
corresponding annuity due?
ANSWER: If indeed the value of an ordinary annuity is already known and we need to
determine the value of an annuity that is due, we need to multiply the value of an ordinary
annuity by the interest rate for one period. which would appear as follows-Annuity due
value is equal to an ordinary annuity multiplied by interest.

Q.18. If you know the present value of an ordinary annuity, how can you find the PV of the
corresponding annuity due?
ANSWER:
Q.20. Assume that you are offered an annuity that pays $100 at the end of each year for 10
years. You could earn 8% on your money in other investments with equal risk. What is the
most you should pay for the annuity? If the payments began immediately, how much would
the annuity be worth? ($671.01; $724.69)
ANSWER:
Q.21.What’s the present value of a perpetuity that pays $1,000 per year beginning one year
from now if the appropriate interest rate is 5%?
ANSWER:

Q.24. Would a typical common stock provide cash flows more like an annuity or more like an
uneven cash flow stream? Explain.
ANSWER: A defined quantity of cash flow is paid out on a regular basis as an annuity. Every
three months or once a year, dividends are normally distributed. The net income for the
company's fiscal year or quarter determines the dividend's size. Net income constantly
changes depending on the state of the market. Companies that pay dividends usually
distribute their dividend payments unequally because net income is erratic.

Q.25. What is the future value of this cash flow stream: $100 at the end of 1 year, $150 due
after 2 years, and $300 due after 3 years if the appropriate interest rate is 15%? ($604.75)
ANSWER:
Q. 26. Would you rather invest in an account that pays 7% with annual compounding or 7%
with monthly compounding? Would you rather borrow at 7% and make annual or monthly
payments?
Why?
ANSWER: Money should be deposited into an account with a 7% compound interest rate
per month. due to the requirement that the amount's effective annual rate be more than
7% annual compound interest. This is the outcome of annual compounding, which
compounds just once annually as compared to monthly compounding, which compounds 12
times annually. Again, the rate at which interest is paid is 7% annual compounding; the rate
at which you may borrow is 7% monthly compounding, which is greater.

Q.27. What’s the future value of $100 after 3 years if the appropriate interest rate is 8%
compounded annually? compounded monthly? ($125.97; $127.02)
ANSWER:
Q.28. What’s the present value of $100 due in three years if the appropriate interest rate is
8% compounded annually? compounded monthly? ($79.38; $78.73)

ANSWER:
Q.30. A bank pays 5% with daily compounding on its savings accounts. Should it advertise
the nominal or effective rate if it is seeking to attract new deposits?
ANSWER:
Q.31. By law, credit card issuers must print their annual percentage rate on their monthly
statements. A common APR is 18% with interest paid monthly. What is the EFF% on such a
loan?[EFF% =19.56%]
ANSWER:
Q.34. Suppose you borrowed $30,000 on a student loan at a rate of 8% and must repay it in
three equal instalments at the end of each of the next 3 years. How large would your
payments be, how much of the first payment would represent interest, how much would be
principal, and what would your ending balance be after the first year? (PMT=$11,641.01;
Interest= $2,400; Principal =$9,241.01; Balance at end of Year 1 = $20,758.99)

ANSWER: