Reference no: EM133027935

Questions -

Q1. Amy borrowed $12,000 at an annual simple interest rate of 10.5% and repaid the loan by paying a lump sum of $15,300. For how many years did she take out the loan?

Q2. A morning radio show offered the following four prizes as alternative prizes for one of its competitions. Assuming an 11% discount rate, which is the most valuable prize?

(a) $8,000 every year for 5 years, with the first amount paid at year 4.

(b) $5,500 every year for 4 years, with the first amount paid today?

(c) $1,800 every year, forever, with the first amount paid after 1 year.

(d) $1,000 now, $9,000 in 3 years, and $20,000 in 8 years.

(e) State the most valuable prize. (Give a reason for your choice.)

Q3. $350,000 is borrowed to purchase a house and land package, to be repaid with equal monthly repayments at 6% interest over 25 years.

(a) How much are the monthly repayments?

(b) How much interest is paid over the life of the loan?

(c) How much is still owed after fifteen years?

Q4. Flamingo's irredeemable preference shares are selling for $62.50 each and pay $3.25 in dividends every six months. What is your effective annual expected rate of return if these securities are purchased at the market value?

Q5. Your grandfather wishes to set up a permanent scholarship paying $5,000 per annum, at the beginning of each year, for an eligible country student studying agriculture. How much would he need to invest if interest on this type of investment is 13% compounded monthly?

Q6. Flo Company has just paid a cash dividend of $2.50 per share. If dividends are expected to grow at a rate of 5% per year, and investors require a 12% rate of return on Flo Company shares, what is the expected value of a share today?