How much will your investment

Assignment Help Financial Management

Reference no: EM133669715

Assignment: Finance Problem

I. What is the present value of $1,500 due in 14 years at a (i) 5 percent interest rate and (ii) 10 percent rate. Explain why the present val¬ue is lower when the interest rate is higher.

II. What is the present value (PV) of an investment that will pay $2,500 in five years if the opportu¬nity cost rate is 9 percent compounded (i) annu¬ally, (ii) quarterly, and (iii) monthly? Explain why the PV is lowest when interest is compounded monthly.

III. Suppose you invest $385 at the end of each of the next eight years. (i) If your opportunity cost is 7 percent compounded annually, how much will your investment be worth after the last $385 payment is made? (ii) What will be the ending amount if the payments are made at the beginning of each year?

IV. Rebecca would like to set up an account to supplement her parents' retirement income for the next 15 years. (i) If the account earns 7.2 percent compounded monthly, how much will Rebecca have to deposit today so that her parents are paid $150 at the end of each month? (ii) How much would she have to deposit if her parents wanted to receive the $150 payment at the beginning of each month?

V. Ten years ago, Bruce invested $1,250. Today, the investment is worth $3,550. If interest is com¬pounded annually, what annual rate of return did Bruce earn on his investment?

VI. Tina owes $12,000 on her automobile loan, which has an interest rate equal to 4.8 percent compounded monthly. If Tina pays $526 at the end of each month, how long will it take her to repay the loan?

VII. Nona purchased a new car earlier today for $32,000. She financed the entire amount us¬ing a five-year loan with a 3 percent interest rate (compounded monthly). (i) Compute the monthly payments for the loan. (ii ) How much will Nona owe on the loan after she makes pay¬ments for two years (i.e., after 24 payments)?

Reference no: EM133669715

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