Reference no: EM132382519

1) If Hannah invests $700 today in an account that pays 4 percent interest compounded annually, how much will she have in her account four years from today?

2) What is the present value of $1,500 due in 14 years at a (a) 5 percent interest rate and (b) 10 percent rate. Explain why the present value is lower when the interest rate is higher.

3) Bryce is considering the purchase of an investment that will pay him $12,500 in 12 years. If Bryce wants to earn a return equal to 7 percent per year (annual compounding), what is the maximum amount he should be willing to pay for the investment today?

4) Ten years ago, Montgomery invested $1,250. Today, the investment is worth $3,550. If interest is compounded annually, what annual rate of return did Montgomery earn on his investment?

5) General Electric's outstanding bond has a $1,000 maturity value and a 4.5 percent coupon rate of interest (paid semiannually). The bond, which was issued five years ago, matures in 10 years. If investors require a return equal to 6 percent to invest in similar bonds, what is the current market value of General's bond?

6) Décorate Interiors has an outstanding bond that was issued 20 years ago. The bond has a $1,000 maturity value and a 5.5 percent coupon rate of interest. Interest is paid semiannually. The bond, which matures in five years, is currently selling for $1,022. What is the bond's yield to maturity?

7) One year ago, Clay Jenkins bought Dell Computer common stock for $20 per share. Today the stock is selling for $19 per share. During the year, Clay received four dividend payments, each in the amount of $0.20 per share.

(a) What rate of return did Clay earn during the year?

(b) What were the (1) dividend yield and (2) the capital gains yield associated with the stock for the year?

8) Derby Ski Resort has grown at a constant rate, which equals 4 percent, for as long as it has been in business. This growth rate is expected to continue long into the future. A couple of days ago, Derby paid common stockholders a dividend equal to $3 per share. If investors require a 10 percent rate of return to purchase Derby's common stock, what is the market value of its common stock?