ps2 - payment of 8 percent, how much must the firm invest...

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FIN300 Introduction to Corporate Finance Professor H. Wang Problem Set #2 Due: Friday, February 5, 2010 Please make sure to write clearly the name of each member in the group on the cover sheet. Please turn in your solutions at the beginning of the lecture on the due date. Late submissions or submissions by groups larger than four students will not be accepted. 1. Calculate the present value of the following cash flows discounted at 10 percent: a. $1,000 received seven years from today. b. $2,000 received one year from today. c. $500 received eight years from today. 2. A firm has an estimated pension liability of $1.5 million due 27 years from today. If the firm can invest in a risk free security that has a stated annual interest
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Unformatted text preview: payment of 8 percent, how much must the firm invest today to be able to make the $1.5 million payment? 3. You have $100,000 to invest for six years. You can invest this at a rate of 7.67% compounded annually, at a rate of 7.52% compounded quarterly, or at a rate of 7.35% compounded monthly. Which of the three alternatives would give you the highest amount in six years? 4. If you can afford a $400 monthly car payment, how much car can you afford if interest rates (APR) are 7% on 36-month loans? 5. A defined-benefit retirement plan offers to pay $20,000 per year for 40 years and increase the annual payment by 3-percent each year. What is the present value at retirement if the discount rate is 10-percent?...
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