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Unformatted text preview: BADM 115 – Section 11 Prof. Isabelle Bajeux‐Besnainou Fall 2008 Form A QUIZ #2 1. (4 points) You want to buy a car, and a local bank will lend you \$15,000. The loan would be fully amortized over 8 years (96 months), and the nominal interest rate would be 15%, 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 \$15,000 8 15.0% ‐15000 96 (# Years * 12) 1.25% (Nominal interest / 12) 0 \$269.18 16.08% = (1 + 1.25%)^12‐1 2. (3 points) Computer World Inc. paid out \$33.7 million in total common dividends and reported \$356.6 million of retained earnings at year‐end. The prior year’s retained earnings were \$313.9 million. What was the net income? Beg. R/E \$ 313,900,000 Ending R/E \$ 356,600,000 Dividends \$ 33,700,000 Solve for NI = Ending R/E ‐ Beg. R/E + Dividends Net Income \$ 76,400,000 3. (3 points) Find the present value of \$700 due in the future under each of these conditions: a. (1 point) 10.8% nominal rate, semiannual compounding, discounted back 6 years Years 6 Nominal rate 10.8% Using the calculator FV ‐700 N 12 (# Years * 2) I/YR 5.40% (Nominal interest / 2) PMT 0 Solve for PV PV \$372.40 A ‐ 1 b. (1 point) 10.8% nominal rate, quarterly compounding, discounted back 6 years Years 6 Nominal rate 10.8% Using the calculator FV ‐700 N 24 (# Years * 4) I/YR 2.70% (Nominal interest / 4) PMT 0 Solve for PV PV \$369.32 c. (1 point) 10.8% nominal rate, monthly compounding, discounted back 2 years Years 2 Nominal rate 10.8% Using the calculator FV ‐700 N 24 (# Years * 12) I/YR 0.90% (Nominal interest / 12) PMT 0 Solve for PV PV \$564.56 A ‐ 2 ...
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