Reference no: EM133175832

Questions -

Q1. Explain the relationship between the time value of money and inflation.

Q2. What are the advantages and disadvantages of a fixed principal and fixed interest loan?

Q3. A balloon payment of $21,000 on your house is due in 10 years. If you can earn an average of 5 percent per year for the 10-year period, how much will you have to place into an account today to have the $21,000 in 10 years? If you had the present value of the lump sum available in your bank account today could you substitute this for the balloon payment.

Q4. The face values of a simple interest note and bank discount note are $8,000 each. Assume both notes have 8.75 percent interest rates for 60 days. Calculate the following:

1. The amount of interest charged for each.

2. The maturity value of the simple interest note.

3. The maturity value of the bank discount note.

4. The amount the borrower receives for the simple interest note.

5. The amount the borrower receives for the bank discount note.

Q5. Carrie Haute buys a fast food restaurant for $500,000. She is very successful and sells the business six years later for $1,375,000. What is Carrie's internal rate of return?

Q6. Discuss the differences between the present value of an annuity and the future value of an annuity.

Q7. You have just won the lottery and have elected to receive $50,000 per year for 20 years. Assume that a 4 percent interest rate is used to evaluate the annuity and that you receive each payment at the beginning of the year.

1. What is the present value of the lottery?

2. How much interest is earned on the present value to make the $50,000-per-year payment?

Q8. Mr. Bates is creating a college fund for his daughter. He will put in $850 at the end of each year for the next 15 years. He expects to earn 6.35% annually. How much money will his daughter have in her college fund?

Q9. Sam is currently 30 years of age. He owns his own business, and wants to retire at the age of 60. He has little confidence in the current Social Security system. He wants to retire with an annual income of $72,000 a year.

If Sam believes he will live to age 90, how much does he have to accumulate by the time he reaches age 60 to receive $72,000 at the end of each year for rest of his life? Sam believes he can earn 8 percent on his money in a stock mutual fund.

Q10. How much does Sam have to accumulate if he wants the payment of $72,000 at the beginning of each year?