Reference no: EM132233050
Business Finance Assignment -
Show all work.
Q1. Solar-light Inc. is considering a project with the following cash flows:
|
Year
|
Cash Flow
|
|
1
|
$800
|
|
2
|
$700
|
|
3
|
$600
|
|
4
|
$500
|
a) Calculate the future value of these cash flows (end of year 4), it the interest rate is 12%.
b) What will be the future value if the interest rate is changed to 16%?
Q2. Mr. Hobbit deposits $2,000 at the end of each year for the next 10 years at an interest rate of 12% per year. How much will he have accumulated at the end of 10 years?
How much would he have accumulated if he deposited the amounts at the beginning of each year?
Q3. Find the present value of a perpetuity that pays $2,000 per year and the interest rate is 10%.
Q4. Given the following data, calculate the effective annual rate (EAR) in each case
|
Sated rate (Nominal APR)
|
Frequency of Compounding
|
Effective rate (EAR)
|
|
10%
|
Monthly
|
?
|
|
12%
|
Quarterly
|
?
|
|
8%
|
Daily (use 365 days)
|
?
|
Q5. Given the following data, calculate the stated (Nominal) annual rate (APR) in each case
|
Sated rate (Nominal APR)
|
Frequency of Compounding
|
Effective rate (EAR)
|
|
?
|
Monthly
|
12%
|
|
?
|
Quarterly
|
6%
|
|
?
|
Daily (use 365 days)
|
15%
|
Q6. Big Bank Corp. wants to earn an effective interest rate of 9% (EAR) on its consumer loans. It uses monthly compounding on consumer loans. What should be the stated (Nominal) rate (APR) on these loans?
Q7. Calculate the future value of $1,000 in 10 years assuming an interest rate of 12% (APR) compounded quarterly. Also calculate the effective annual rate (EAR) on the investment.
Q8. Mr. Wise is retiring in 25 years. He would like to accumulate $1,000,000 for his retirement fund by then. He plans make equal monthly payments to achieve his goal. If the rate of return on the retirement fund is 12% (APR), what will his monthly payments be?
Q9. Mr. Wise makes payments (as per problem 8) for the first ten years and stops making payments afterwards due personal problems. How much would he have accumulated at the time of retirement assuming that the accumulated amount keeps on earning interest at the stated rate on a monthly basis?
Q10. Mr. Spend has accumulated credit card loans of $15,000 and is finding it difficult to make payments. His local bank has offered him a consolidation loan to pay-off all the credit card loans. The loan calls for monthly payments for 10 years and has a nominal interest rate of 5.99% (APR). What will Mr. Spend's monthly payments be if he takes the loan?
|
Credit Card
|
Loan Amount
|
Monthly Payment
|
|
Visa 1
|
$3,000
|
$90
|
|
Visa 2
|
$5,000
|
$120
|
|
Visa 3
|
$6,000
|
$150
|
|
Master Card 1
|
$1,000
|
$20
|
Q11. Mr. Carter is planning to buy a home and he expects to borrow $200,000 for that purpose. Currently 15-year mortgage loans are quoted at 5% (APR). He expects to make monthly payments towards the loan. Calculate his monthly payments.
What will be the outstanding amount on the loan after making payments for 5 years?
Q12. Given the following data, calculate the present value of the cash flows (ordinary annuity) in each case. Also calculate the present value of the cash flows (annuity due) in each case.
|
Payment
|
Years
|
Interest Rate
|
Present Value
|
|
$500
|
10
|
6%
|
|
|
$1,200
|
20
|
7.5%
|
|
|
$2,500
|
12
|
12%
|
|
|
$750
|
7
|
10%
|
|
Q13. Given the following data, calculate the future value of the cash flows (ordinary annuity) in each case. Also calculate the future value of the cash flows (annuity due) in each case.
|
Payment
|
Years
|
Interest Rate
|
Future Value
|
|
$500
|
10
|
6%
|
|
|
$1,200
|
20
|
7.5%
|
|
|
$2,500
|
12
|
12%
|
|
|
$750
|
7
|
10%
|
|
Q14. Chuck's new car will cost $20,000. How much will his monthly car payments be if gets a loan for 60 months, and the nominal interest rate is 7% per year.
Q15. In order to start a new business, Miss Sue Me intends to borrow $50,000 from a local bank. The loan contract requires her to repay the loan in five equal installments of $13,870 at the end of each year. Calculate the annual interest rate on the loan.
Q16. Highlight Inc. is considering an investment project with the following cash flows:
|
Year
|
Cash Flow
|
|
1
|
$300
|
|
2
|
$400
|
|
3
|
$600
|
|
4
|
$900
|
If the discount rate is 10%, calculate the present value of these cash flows. What will be the present value if the discount rate is changed to 15%?
Q17. Suppose you have the opportunity to make an investment in a real estate venture that expects to pay investors $750 at the end of each month for the next eight years. You believe that a reasonable return on your investment should be 17 percent compounded monthly. How much should you pay for the investment?
Q18. The Dallas Development Corporation is considering the purchase of an apartment project for $100,000. They estimate that they will receive $15,000 at the end of each year for the next 10 years. At the end of the 10th year, the apartment project will be worth nothing. If the company insists on a 9 percent return compounded annually on its investment, is this a good investment?
Q19. Your uncle has given you a bond that will pay $500 at the end of each year forever into the future. If the market yield on this bond is 8.25 percent, how much is it worth today?
Q20. How much should you pay for an investment that pays $1,500 per year for the next three years and then $2,000 per year for the following two years? Assume a discount rate of 15% per year?