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Chapter 2 Questions, Edition 11.docx - BASIC 1. Future...

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BASIC1.Future valuesAtaninterestrateof12%,thesix-yeardiscountfactoris.507.Howmanydollarsis$.507worthinsixyearsifinvestedat12%?Answer2.Discount factorsIfthePVof$139is$125,whatisthediscountfactor?3.Present valuesIfthecostofcapitalis9%,whatisthePVof$374paidinyear9?Answer4.Present valuesAprojectproducesacashflowof$432inyear1,$137inyear2,and$797inyear3.Ifthecostofcapitalis15%,whatistheproject'sPV?5.Futures valuesIfyouinvest$100ataninterestrateof15%,howmuchwillyouhaveattheendofeightyears?Answer6.PerpetuitiesAninvestmentcosts$1,548andpays$138inperpetuity.Iftheinterestrateis9%,whatistheNPV?7.Growing perpetuitiesAcommonstockwillpayacashdividendof$4nextyear.Afterthat,thedividendsareexpectedtoincreaseindefinitelyat4%peryear.Ifthediscountrateis14%,whatisthePVofthestreamofdividendpayments?Answer8.Perpetuities and annuitiesTheinterestrateis10%.a.WhatisthePVofanassetthatpays$1ayearinperpetuity?b.Thevalueofanassetthatappreciatesat10%perannumapproximatelydoublesinsevenyears.WhatistheapproximatePVofanassetthatpays$1ayearinperpetuitybeginninginyear8?c.WhatistheapproximatePVofanassetthatpays$1ayearforeachofthenextsevenyears?d.Apieceoflandproducesanincomethatgrowsby5%perannum.Ifthefirstyear'sincomeis$10,000,whatisthevalueoftheland?Answer9.Future values and annuitiesa.Thecostofanewautomobileis$10,000.Iftheinterestrateis5%,howmuchwouldyouhavetosetasidenowtoprovidethissuminfiveyears?Page 40b.Youhavetopay$12,000ayearinschoolfeesattheendofeachofthenextsixyears.Iftheinterestrateis8%,howmuchdoyouneedtosetasidetodaytocoverthesebills?c.Youhaveinvested$60,476at8%.Afterpayingtheaboveschoolfees,howmuchwouldremainattheendofthesixyears?
Answer10.Continuous compoundingThecontinuouslycompoundedinterestrateis12%.a.Youinvest$1,000atthisrate.Whatistheinvestmentworthafterfiveyears?b.WhatisthePVof$5milliontobereceivedineightyears?c.WhatisthePVofacontinuousstreamofcashflows,amountingto$2,000peryear,startingimmediatelyandcontinuingfor15years?11.Compounding intervalsYouarequotedaninterestrateof6%onaninvestmentof$10million.Whatisthevalueofyourinvestmentafterfouryearsifinterestiscompounded:a.Annually?b.Monthly?orc.Continuously?

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