HW # 1-AK - FIN 3301 Homework # 1- AK Due: Wednesday,...

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FIN 3301 Name________________________ Homework # 1- AK Due: Wednesday, September 30 Problem # 1 i . Suppose a U.S. government bond will pay $1,000 three years from now. If the going interest rate on 3- year government bonds is 4%, how much is the bond worth today? Problem # 2 ii . Addico Corp's 2005 earnings per share were $2, and its growth rate during the prior 5 years was 11.0% per year. If that growth rate were maintained, how long would it take for Addico’s EPS to double? Problem # 3 iii . You want to buy a condo 5 years from now, and you plan to save $3,000 per year, beginning immediately . You will make 5 deposits in an account that pays 6% interest. Under these assumptions, how much will you have 5 years from today? Problem # 4 iv . What annual payment would you have to receive in order to earn an 8% rate of return on a perpetuity that cost $1,500? Problem # 5 v . What’s the present value of $2,000 discounted back 3 years if the appropriate interest rate is 8%, compounded semiannually? Problem # 6 vi . Bank A offers to lend you $10,000 at a nominal rate of 7%, compounded monthly. The loan (principal plus interest) must be repaid at the end of the year. Bank B also offers to lend you the $10,000, but it will charge 8%, with interest due at the end of the year. What is the difference in the effective annual rates charged by the two banks? Problem # 7 vii . After graduation, you plan to work for Mega Corporation for 10 years and then start your own business. You expect to save $5,000 a year for the first 5 years and $10,000 annually for the following 5 years, with the first deposit being made a year from today. In addition, your grandfather just gave you a $20,000 graduation gift which you will deposit immediately. If the account earns 8% compounded annually, what how much will you have when you start your business 10 years from now? Problem # 8
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HW # 1-AK - FIN 3301 Homework # 1- AK Due: Wednesday,...

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