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final%20solutions%202009%203%20fall

# final%20solutions%202009%203%20fall - FNAN 301 fall 2009...

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FNAN 301, fall 2009, final, solutions Quantitative: value of a growing perpetuity and return of a fixed perpetuity 1. You own two investments, A and B, that have a combined total value of \$14,700. Investment A is expected to make its next monthly payment in 1 month. A’s next payment is expected to be \$56 and subsequent payments are expected to grow by 0.2 percent per month forever. The expected return for investment A is 1.0 percent per month. Investment B is expected to pay \$67 a month forever and make its next payment in 1 month. What is the monthly expected return for investment B? 1. You own two investments, A and B, that have a combined total value of \$15,500. Investment A is expected to make its next monthly payment in 1 month. A’s next payment is expected to be \$56 and subsequent payments are expected to grow by 0.3 percent per month forever. The expected return for investment A is 1.0 percent per month. Investment B is expected to pay \$64 a month forever and make its next payment in 1 month. What is the monthly expected return for investment B? 1. You own two investments, A and B, that have a combined total value of \$15,400. Investment A is expected to make its next monthly payment in 1 month. A’s next payment is expected to be \$48 and subsequent payments are expected to grow by 0.2 percent per month forever. The expected return for investment A is 1.0 percent per month. Investment B is expected to pay \$62 a month forever and make its next payment in 1 month. What is the monthly expected return for investment B? Quantitative: compute present value of two cash flows of different signs 2. You just bought a new car today. What is the present value of your cash flows if the discount rate is 12.3 percent, you will receive a rebate of \$2,000 from the dealer in 2 years, and you will pay \$40,000 to the dealer in 4 years? Note: the correct answer is less than zero. 2. You just bought a new car today. What is the present value of your cash flows if the discount rate is 13.3 percent, you will receive a rebate of \$2,000 from the dealer in 2 years, and you will pay \$45,000 to the dealer in 4 years? Note: the correct answer is less than zero. 2. You just bought a new car today. What is the present value of your cash flows if the discount rate is 14.3 percent, you will receive a rebate of \$2,000 from the dealer in 2 years, and you will pay \$50,000 to the dealer in 4 years? Note: the correct answer is less than zero. 1

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FNAN 301, fall 2009, final, solutions Quantitative: FV of annuity and payment associated with PV annuity
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final%20solutions%202009%203%20fall - FNAN 301 fall 2009...

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