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You have a goal of wanting to provide some assurance to your family that they will be taken care of financially if anything unfortunate happens to you. After graduation you will be hounded by insurance agents interested in selling you "whole life" or "universal life" insurance. Assume (realistically) that there is a plan which you pay $750 per month for 20 years, and then you have your $250,000 life insurance policy "paid up" for life (you never have to pay any more premiums, but you are guaranteed a $250,000 payout whenever you die). You would make your first payment the day you sign up, and them at the end of each month for a total of 240 payments. You want to compare the value of that plan to buying term insurance which costs you $225 per month for a $250,000 policy with the rate guaranteed for 20 years (in other words you would pay the $225 monthly premium for 20 years, then drop the policy and your coverage would end). The relevant comparison is to look at investing the difference (between the $750 and the $225) and see how long it would take you to accumulate the $250,000 in an account so you could "self-insure". Assume you can earn 8.0% (annual) on the invested difference (but remember you are investing and compounding monthly). How long will it take you to accumulate $250,000? How much will you have accumulated at the end of 20 years? Solve the problem using the "Brute Force Method for finding Future Values" in a spreadsheet.
You are lending your friend $25,000. She agrees to repay the loan in equal quarterly payments over a three-year period at an interest rate of 8% compounded quarterly. How much interest will you earn over the life of the loan?
A video store sells and rents videos to people. A person must be a store member to rent from that store.
Combined Communications is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 23 percent a year for the next 4 years and then decreasing the growth rate to 5 percent per year. The company just paid ..
Suppose the average return on Asset A is 6.4 percent and the standard deviation is 8.4 percent. Further assume that the returns are normally distributed.
Kirk Co. manufactures mobile cellular equipment and develops a price for the product by using a variable cost concept. Kirk incurs variable costs.
Proposal 1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks. Sales are projected to increase by $100,000 per year if credit is extended to these new customers. Compute the inc..
A friend of yours needs to decide whether or not to invest in multiyear project. The basis of decision to invest will be whether project has a positive value
Suppose the spot rates for 1 and 2 years are s1=6.3% and s2=6.9% with annual compounding. Recall that in this course interest rates are always quoted on an annual basis unless otherwise specified. What is the discount rate d(0,2)?
How do stock-splits increase shareholder value?
What are the reasons why the Board of Directors of a corporation might approve a stock repurchase plan?
One year ago, your company purchased a machine used in manufacturing for $105,000. Should your company replace its year-old machine?
Suppose the international parity conditions hold. Does that mean that the nominal interest rates would be equal among countries? Why or why not?
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