question archive 1) Given an interest rate of 6
1) Given an interest rate of 6
Subject:FinancePrice: Bought3
1)
| Given an interest rate of 6.5 percent per year, what is the value at date t = 7 of a perpetual stream of $400 payments with the first payment at date t = 15? |
Multiple Choice
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$3,880.84
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$6,253.85
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$4,039.24
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$3,718.35
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$3,960.04
1A)
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You are looking at an investment that has an effective annual rate of 12 percent. |
| a. | What is the effective semiannual return? |
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| b. |
What is the effective quarterly return? |
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| c. | What is the effective monthly return? |
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1B)
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You want to have $55,000 in your savings account 10 years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.7 percent interest, what amount must you deposit each year? |
Multiple Choice
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$4,037.52
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$5,500.00
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$3,685.01
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$3,684.99
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$7,807.91
1C)
| Find the APR, or stated rate, in each of the following cases: |
| a. | An effective interest of 15% compounded semiannually |
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| b. | An effective interest of 10% compounded monthly |
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| c. | An effective interest of 8% compounded weekly |
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| d. | An effective interest of 10% with continuous compounding |
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1D)
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McCann Company has identified an investment project with the following cash flows. |
| Year | Cash Flow |
|---|---|
| 1 | $ 800 |
| 2 | 1,060 |
| 3 | 1,240 |
| 4 | 1,200 |
| a. |
If the discount rate is 9 percent, what is the present value of these cash flows? |
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| b. |
What is the present value at 18 percent? |
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| c. | What is the present value at 30 percent? |
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| The appropriate discount rate for the following cash flows is 8 percent compounded quarterly. |
1E)
| Year | Cash Flow |
|---|---|
| 1 | $ 1,000 |
| 2 | 700 |
| 3 | 0 |
| 4 | 1,100 |
| What is the present value of the cash flows? |
Multiple Choice
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$2,334.60
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$2,369.03
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$2,322.58
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$777.48
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$2,276.13
1F)
| Find the EAR in each of the following cases: |
| a. | 19% compounded quarterly |
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| b. | 6% compounded monthly |
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| c. | 8% compounded daily |
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| d. | 19% with continuous compounding |
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1G)
| Suppose you are going to receive $25,000 per year for 6 years. The appropriate interest rate is 6 percent. |
| a. | What is the present value of the payments if they are in the form of an ordinary annuity |
| b. | What is the present value if the payments are an annuity due? |
1H)
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Big Dom's Pawn Shop charges an interest rate of 17 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers. |
| a. | What rate should the shop report? |
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| b. | What is the effective annual rate? |
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| c. | Suppose you plan to invest the payments for 6 years, what is the future value if the payments are an ordinary annuity? |
| d. | Suppose you plan to invest the payments for 6 years, what is the future value if the payments are an annuity due? |
1I)
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Live Forever Life Insurance Company is selling a perpetuity contract that pays $1,350 monthly. The contract currently sells for $75,000. |
| a. | What is the monthly return on this investment vehicle? |
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| b. | What is the APR? |
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| c. | What is the effective annual rate? |
