FIN 320 Assignments from the reading P4-4,4-9,4-25,4-31,4-37,4-43,3-51,11-6,11-7,11-10

FIN 320 Assignments from the reading P4-4,4-9,4-25,4-31,4-37,4-43,3-51,11-6,11-7,11-10

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P4-4 Cash Single cash flow Interest Rate Deposit period (years) Future Rate A $200 5% 20 200*(1+0.05) 20 = 200*2.653 = $530.60 B $2,500 8% 7 2,500*(1+0.08) 7 = 2500*1.714 = $4,285.00 C $10,000 9% 10 10,000*(1+0.09) 10 =10,000*2.367 = $23,670.00 D $25,000 10% 12 25,000*(1+0.10) 12 = 25,000*3.138= $78,450.00 E $37,000 11% 5 37,000*(1+0.11) 5 = 37,000*1.685= $62,345.00 F $40,000 12% 9 40,000*(1+0.12) 9 = 40,000*2.773= $110,920.00 P4-9 Case Opportunity cost, i Number of periods, n Equation A 2% 4 (1+0.2) 4 = 1.082 B 10% 2 (1+0.10) 2 = 1.210 C 5% 3 (1+0.05) 3 = 1.158 D 13% 2 (1+0.13) 2 = 1.277 P4-25 Table a Cash flow stream Year Mixed amount Equation (1+0.12) n total 1 900 900*(1+0.12) 3 = 900*1.405 = 2669.50 2 1000 1000*(1+0.12) 2 = 1000*1.254 = 1254.00 3 1200 1200*(1+0.12) 1 = 1200*1.120 = 1344.00 Total 5267.50 Table b Cash flow stream Year Mixed amount Equation (1+0.12) n total 1 30,000 30,000*(1+0.12) 5 = 30000*1.762 = 52860.00
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2 25,000 25,000*(1+0.12) 4 = 25000*1.574 = 39350.00 3 20,000 20,000*(1+0.12) 3 = 20000*1.405 = 28100.00 4 10,000 10,000*(1+0.12) 2 = 10000*1.254 = 12540.00 5 5,000 5,000*(1+0.12) 1 = 5000*1.120 = 5600.00 Total 138450.00 Table c Cash flow stream Year Mixed amount Equation (1+0.12) n Total 1 1,200 1,200*(1+0.12) 4 = 1200*1.574= 1888.80 2 1,200 1,200*(1+0.12) 3 =1200*1.405 = 1686.00 3 1,000 1,000*(1+0.12) 2 = 1000*1.254 = 1254.00 4 1,900 1,900*(1+0.12) 1 = 1900*1.120 = 2128.00 Total 6956.80 P4-31 1. 800/1.05 = 761.90 2. 900/1.102 = 816.70 3. 1000/1.158 = 863.60 4. 1500/1.216 = 1233.60 5. 2000/1.276 = 1567.40 Total 5243.20 b. The amount I would be willing to pay is $5,243.20. This is the present value, paying any more would lose money, because there is a set future value $6,200 that can be earned. To pay more would require a different interest rate, smaller interest rate. c. A 7% interest rate instead of a 5% would lower the present value, the amount needed to get to the future value. This would require a lower investment to pay for this amount and would attract person quicker. The opportunity to make more while paying less, is the part of investing that attracts investors. P4-37
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A. a. 300 * FVIFA 8%,10 = 300 * 14.487 = 4346.10 b. ($150 semiannually = 300) 300 * FVIFA 4%,20 = 300 * 29.778 = 4466.71 c. ($75 quarterly = 300) 300 * FVIFA 2%,40 = 300 * 60.402 = 4530.15 B. Part A offers a total of $4346.10 if Janet deposits 300.00 every year, but if she breaks this amount down into $150 and $75, the amount of interest earned in compounding the interest increases the amount earned at the end of 10 years. If a person was to decide they needed to earn the most from a deposit, the choice of compounding interest quarterly would be the best choice because the amounts gain interest quicker. By allowing each amount to add interest and grow brings the total earned to a larger amount at the end. P4-43 a. PVA 3 /PVIFA 14%,3 = 0.14*15,000(1+0.14) 3 /(1+0.14) 3 -1 = 6,460.97 End of year Beginning- of-year principal (1) Loan payment (2) Interest [0.14 x (1)] (3) Principal [(2) – (3)] (4) End-of-year principal [(1) – (4)] (5) 1 15,000.00 6,460.97 2,100.00 4,360.97 10,639.03 2 10,639.03 6,460.97 1,489.46 4,971.51 5667.52 3 5,667.52 6,460.97 793.45 5667.52 0 The interest payments lower over time because the principal amount lowers over time. Every year that the interest and principal is lower, the interest on each principal lowers. This is why although the payments stay the same until the loan is paid the banks make less money on interest towards the end. The largest amount of interest is the first payment.
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