Reference no: EM132483233

Point 1.) An investment offers $7,700 per year for 14 years, with the first payment occurring one year from now. Assume the required return is 8 percent.

Question 1: What is the value of the investment today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value $

Question 2: What would the value be if the payments occurred for 39 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value $

Question 3: What would the value be if the payments occurred for 74 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value $

Question 4: What would the value be if the payments occurred forever? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value $

Point 2.) You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $7,400 per month for the next two years, or you can have $6,100 per month for the next two years, along with a $33,000 signing bonus today. Assume the interest rate is 6 percent compounded monthly.

Question 5: If you take the first option, $7,400 per month for two years, what is the present value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value $

Question 6: What is the present value of the second option? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value $

Point 3.) You're prepared to make monthly payments of $255, beginning at the end of this month, into an account that pays 11 percent interest compounded monthly.

Question 7: How many payments will you have made when your account balance reaches $66,000? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Number of payments

Point 4.) Make an amortization schedule for a three-year loan of $90,000. The interest rate is 11 percent per year, and the loan agreement calls for a principal reduction of $30,000 every year. How much total interest is paid over the life of the loan? (Leave no cells blank. Enter '0' where necessary. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Year Beginning Balance Total Payment Interest Payment

1                         $ $ $

2                      $ $ $

3                          $ $ $

Point 5.) This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $25,000 for one year. The interest rate is 18.5 percent. You and the lender agree that the interest on the loan will be .185 × $25,000 = $4,625. So, the lender deducts this interest amount from the loan up front and gives you $20,375. In this case, we say that the discount is $4,625.

Question 8: What is the interest rate on this loan? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)