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Fina 301 Chapter 5

The document provides various financial calculations related to future values, present values, annuities, and loan payments. It includes examples of how to calculate future and present values for different investment scenarios, as well as comparisons of loan terms from different banks. Additionally, it discusses retirement account contributions and their growth over time based on different interest rates.

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Claudina Zeca
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12 views10 pages

Fina 301 Chapter 5

The document provides various financial calculations related to future values, present values, annuities, and loan payments. It includes examples of how to calculate future and present values for different investment scenarios, as well as comparisons of loan terms from different banks. Additionally, it discusses retirement account contributions and their growth over time based on different interest rates.

Uploaded by

Claudina Zeca
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 5

1-You think you will be able to deposit $4,000 at


the end of each of the next three years in a
bank account paying 8 percent interest.
2-You currently have $7,000 in the account.
3-How much will you have in 3 years?
4-How much in 4 years?

– Year 0: FV = $7,000(1.08)3 = $ 8,817.98


– Year 1: FV = $4,000(1.08)2 = $ 4,665.60
– Year 2: FV = $4,000(1.08)1 = $ 4,320.00
– Year 3: value = $ 4,000.00
– Total value in 3 years = $21,803.58
– Value at year 4 = $21,803.58(1.08)=
$23,547.87

2- Annuity Present Value


. You are looking into an investment that will pay you
$12,000 per year for the next 10 years. If you require a 15
percent return, what is the most you would pay for this
investment?
3- Calculating Annuity Present Values
. An investment offers $5,450 per year for 15 years, with
the first payment occurring one year from now. If the
required return is 8 percent, what is the value of the
investment? What would the value be if the payments
occurred for 40 years? For 75 years? Forever?

4-Calculating Future Values


. What is the future value of $1,345 in 16 years assuming
an interest rate of 8.4 percent compounded semiannually?
5-Calculating Present Values
. An investment will pay you $65,000 in nine years. If the
appropriate discount rate is 5.5 percent compounded
daily, what is the present value?

6-Calculating Loan Payments.


You want to buy a new sports coupe for $73,400, and the
finance office at the dealership has quoted you a loan with
an APR of 5.1 percent for 60 months to buy the car. What
will your monthly payments be? What is the effective
annual rate on this loan?
7-Calculating Annuity Future Values.
You are to make monthly deposits of $500 into a
retirement account that pays an APR of 9.8 percent
compounded monthly. If your first deposit will be made
one month from now, how large will your retirement
account be in 35 years?

8-In the previous problem, suppose you make $6,000


annual deposits into the same retirement account. How
large will your account balance be in 35 years?
9- First National Bank charges 10.1 percent compounded
monthly on its business loans. First United Bank charges
10.3 percent compounded semiannually. As a potential
borrower, which bank would you go to for a new loan

Quize 3

1-You are to make annual deposits of $400 into a


retirement account that pays 12 percent internt mobily
If your first deposit will be made today, how large will your
setirement account be in 25 years?
2- Suppose you have just celebrated your 20 birthday A
rich uncle set up a trust fand for you that will
you $170,000 when you turn 26. If the relevant discount
rate is 15% semiannually, how much is this fusd
worth today.

3- An investment policy is offering $10,000 per year


forever. If the required return on this investment is 15
percent, how much will you pay for the policy!

5- The time clock is trying to made a decision to


purchase a lone of 5 years either isbank or Garanti Bank.
Isbank is offering 10% monthly compounding and Garanti
Bank is offering a rate of 8%

quarterly compounding. Which bank should the company


prefer?

5-Bucher Credit Bank is offering 8.4 percent compounded


semiannually on its saving accounts. If you deposit $1.345
today, how much will you have in sixteen years?
6-You are offered an investment that will pay you $200 in
one year, $400 in the next year, $600 the next year, and
$800 at the end of the next year. You can earn 12 percent
on very similar investments. What is the most you should
pay for this one?

7-If you deposit $5,000 at the end of each year for the next
20 years into an account paying percent, how much
money will you have in the account in 20 years?
8- Peter Lynchpin wants to sell you an investment contract
that pays equal $1,650 amounts at the end of each month
for the next five years. If you require an interest rate of
8.72 percent compounded monthly on this investment,
how much will you pay for the contract today?

9-Suppose the Fellini Co. wants to sell preferred stock at


$100 per share, and offers a dividend of $2.5 every
quarter. What interest rate the Fellini Co. will have to
offer?

10- The going rate on student loan is quoted as 9 percent


APR. The terms of the loan call for monthly payments.
What is the effective annual rate (EAR) on such a student
loan?
11-You have arranged for a loan on your new car that will
require monthly payments of $465 at the beginning of
each month. If the APR of the loan is 5.42 percent
compounded monthly. and the loan will be paid off over
the next 60 months, what's the value of your loan today?

12-Suppose you borrow $10,000. You are going to repay


the loan by making equal annual payments for five years.
The interest rate on the loan is 14 percent. Prepare an
amortization schedule for the loan, continue the table only
for complete two years.

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