Reference no: EM132545620
Problem 1: Under which of the following discounting methods will the present value of an investment be the highest, assuming the same annual interest rate?
Yearly
Monthly
Continuous
Quarterly
Problem 2: Future value: Larry James is planning to invest $25,500 today in a mutual fund that will provide a return of 0.08 each year. What will be the value of the investment in 10 years? Round to two decimal places.
Problem 3: The future value of an annuity is typically used when analyzing
the price of common stock.
retirement plans.
loan amortization schedules.
alternative capital budgeting proposals.
Problem 4: You plan to buy a new car. The price is $30,000 and you will make a down payment of $4,000. Your annual interest rate is 10% and you intend to pay for the car over five years. What will be your monthly payment?
$552.42
$566.67
$637.41
$433.33
Problem 5: Stanley Roper has $2,200 that he is looking to invest. His brother approached him with an investment opportunity that could give Patrick $4,500 in 4 years. What interest rate would the investment have to yield in order for Stanley's brother to deliver on his promise? (Answer needs to be stated as a decimal. For example: .1192) Round to four decimal places.
Problem 6: Chuck Brown will receive from his investment cash flows of $3,155, $3,450, and $3,840 at the end of years 1, 2 and 3 respectively. If he can earn 7.5 percent on any investment that he makes, what is the future value of his investment cash flows at the end of three years? (Round to two decimal places.)
Problem 7: Your brother has asked you to help him with choosing an investment. He has $6,600 to invest today for a period of two years. You identify a bank CD that pays an interest rate of 0.0300 annually with the interest being paid quarterly. What will be the value of the investment in two years? Round to two decimal places.
Problem 8: You are evaluating a growing perpetuity product from a large financial services firm. The product promises an initial payment of $24,000 at the end of this year and subsequent payments that will thereafter grow at a rate of 0.04 annually. If you use a discount rate of 0.09 for investment products, what is the present value of this growing perpetuity? Round to two decimal places.