Review Set 4
Finance 320 Winter 2011
Problems to Work
1.
In 1880 five aboriginal trackers were each promised the equivalent of 100 Australian dollars
for helping to capture the notorious outlaw, Ned Kelley.
In 1996 the granddaughters of two of
the trackers claimed that this reward had not been paid.
The Prime Minister of Victoria stated
that, if this was true, the government would be happy to pay the A$100.
However, the
granddaughters also claimed that they were entitled to compound interest.
How much was each
entitled to if the interest rate was 2%?
8%?
2.
Performance Auto is offering a choice of either special financing or a price discount on their
new sports car.
The sticker price is $31,000 and you can drive it away today for a cash payment
of $25,000.
You could borrow the $25,000 from 4
th
/8 bank at 9% APR and make monthly
payments for 4 years.
Performance will loan to you at .72% APR if you pay the full price and
make monthly payments for 4 years.
Which deal should you select?
3.
Stan purchased a house for $175,000.
He paid $20,000 down and borrowed the rest at 9%
interest.
Stan agreed to repay the loan in 20 equal yearend payments that include both interest
and principal.
How much will Stan's payments be?
What would the amount of the payments be
if Stan paid on a monthly basis assuming the 9% was treated as APR. What would EAR be in this
case?
4.
a. What is the annual growth rate in the price of a stock that sells at $95 today and was
purchased at $26, four years ago?
b.
What is the annual growth rate if Duratex Inc. triples it sales in eight years?
5.
Suppose you would like to be paid $40,000 at the end of each year during your retirement,
which starts in 25 years.
Assume that the $40,000 is an annual perpetuity and that the expected
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 Winter '07
 Yatin
 Finance, Annual growth rate, excess funds, Sadpar Kanti

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