Quiz2_B(Answers)

Quiz2_B(Answers) - BADM 115 – Section 11 Prof. Isabelle...

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Unformatted text preview: BADM 115 – Section 11 Prof. Isabelle Bajeux‐Besnainou Fall 2008 Form B QUIZ #2 1. (4 points) You want to buy a car, and a local bank will lend you $18,000. The loan would be fully amortized over 6 years (72 months), and the nominal interest rate would be 9%, with interest paid monthly. What would be the monthly loan payment? What would be the loan’s EAR? Loan Years Nominal interest ra Using a financial calculator PV N I/YR FV Solve for PMT PMT To find EAR: EAR $18,000 6 9.0% ‐18000 72 (# Years * 12) 0.75% (Nominal interest / 12) 0 $324.46 9.38% = (1 + 0.75%)^12‐1 2. (3 points) Computer World Inc. paid out $18.9 million in total common dividends and reported $754.5 million of retained earnings at year‐end. The prior year’s retained earnings were $840.4 million. What was the net income? Beg. R/E $ 840,400,000 Ending R/E $ 754,500,000 Dividends $ 18,900,000 Solve for NI = Ending R/E ‐ Beg. R/E + Dividends Net Income $ (67,000,000) 3. (3 points) Find the present value of $1,100 due in the future under each of these conditions: a. (1 point) 14.4% nominal rate, semiannual compounding, discounted back 4 years Years 4 Nominal rate 14.4% Using the calculator FV ‐1100 N 8 (# Years * 2) I/YR 7.20% (Nominal interest / 2) PMT 0 Solve for PV PV $630.72 B ‐ 1 b. (1 point) 14.4% nominal rate, quarterly compounding, discounted back 4 years Years 4 Nominal rate 14.4% Using the calculator FV ‐1100 N 16 (# Years * 4) I/YR 3.60% (Nominal interest / 4) PMT 0 Solve for PV PV $624.65 c. (1 point) 14.4% nominal rate, monthly compounding, discounted back 2 years Years 2 Nominal rate 14.4% Using the calculator FV ‐1100 N 24 (# Years * 12) I/YR 1.20% (Nominal interest / 12) PMT 0 Solve for PV PV $826.15 B ‐ 2 ...
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