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Unformatted text preview: FNAN 301, Spring 2010, quiz 1, solutions Quantitative: simple and compound interest 1. Snooki just invested $1,400 for 9 years and will earn compound interest of 6.0 percent per year. Today, Vinny can make an investment and earn simple interest of 6.0 percent per year. If Vinny wants to have just as much in 9 years as Snooki will have in 9 years, then how much should Vinny invest today? 1. Snooki just invested $1,500 for 9 years and will earn compound interest of 7.0 percent per year. Today, Vinny can make an investment and earn simple interest of 7.0 percent per year If Vinny wants to have just as much in 9 years as Snooki will have in 9 years, then how much should Vinny invest today? 1. Snooki just invested $1,400 for 9 years and will earn compound interest of 7.0 percent per year. Today, Vinny can make an investment and earn simple interest of 7.0 percent per year. If Vinny wants to have just as much in 9 years as Snooki will have in 9 years, then how much should Vinny invest today? 1. Snooki just invested $1,500 for 9 years and will earn compound interest of 6.0 percent per year. Today, Vinny can make an investment and earn simple interest of 6.0 percent per year. If Vinny wants to have just as much in 9 years as Snooki will have in 9 years, then how much should Vinny invest today? Quantitative: basic future value problem 2. Danny owns a beach house on the Jersey Shore that is currently worth $600,000. If he plans to sell the beach house in 5 years from today and the cost of capital is 8.4 percent, then what is the value of the beach house expected to be in 5 years from today? 2. Danny owns a beach house on the Jersey Shore that is currently worth $650,000. If he plans to sell the beach house in 5 years from today and the cost of capital is 7.6 percent, then what is the value of the beach house expected to be in 5 years from today? 2. Danny owns a beach house on the Jersey Shore that is currently worth $700,000. If he plans to sell the beach house in 5 years from today and the cost of capital is 7.3 percent, then what is the value of the beach house expected to be in 5 years from today? 2. Danny owns a beach house on the Jersey Shore that is currently worth $750,000. If he plans to sell the beach house in 5 years from today and the cost of capital is 5.4 percent, then what is the value of the beach house expected to be in 5 years from today? 1 FNAN 301, Spring 2010, quiz 1, solutions Conceptual and quantitative: present value 3. Pauly D just bought 2 cases of hair gel from Rhode Island Hair Products. Pauly D has been offered the 3 possible payment options described in the table. If the discount rate is 9.0%, which of the assertions is true? Option Terms of payment (amount and timing) from Pauly D to Rhode Island Hair Products A $10,000 today B $12,500 in 2 years from today C $16,000 in 4 years from today A. Pauly D should prefer option B more than option A and Pauly D should prefer option C more than option A B. Pauly D should prefer option B more than option A, but Pauly D should not prefer option C B....
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This note was uploaded on 02/03/2011 for the course FINANCE 301 taught by Professor Murray during the Spring '09 term at George Mason.
 Spring '09
 MURRAY
 Interest

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