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FINC 322 - Homework #1

# FINC 322 - Homework #1 - is 10 What is the present value of...

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FINC 322 Financial Management 1 Homework #1 (Time Value of Money) Show all your work. This is due November 8th 2011 in class ( Tuesday ) You can do this homework alone or form a team of up to 4 students; but no more than 4 students in each team. When you submit this homework, you should have information on team members on top. I won’t accept late homework. This homework contributes 35 points (50% of your total homework points; the other 50% from homework #2) to your course total points (740 point s) [refer to “F. Grading” on page 3 in the syllabus ] Homework will not be returned to you after grading but you can come to my office to go over your homework for any grading concern. 1. What is the future value of the following set of cash flows 4 years from now? Assume interest rate 6.5%. T 0 1 2 3 4 CF 200 400 300 500 700 2. What is the effective annual rate of 6% compounded daily? 3. Four years from now you will receive the first of seven annual \$6,000 payments. The interest rate
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Unformatted text preview: is 10%. What is the present value of this cash flow stream (PV @t=0)? 4. You need to borrow \$23,000 to buy a truck. The current loan rate is 7.99% compounded monthly and you want to pay the loan off in equal monthly payments over 50 months. What is the size of your monthly payment? 5. What is the future value in 12 years of \$800 payments received at the beginning of each year for the next 12 years? Assume an interest rate of 7%. 6. You just won the lottery. You and your heirs will receive \$40,000 per year forever, beginning 5 year from now. What is the present value of your winnings at a 10% discount rate? 7. You borrowed \$1,200 at 8% compounded semiannually . Your payments are \$120 at the end of each year . How many years will you make payments on the loan? ( Hint: compounding frequency is different from payment frequency; compounding effect? Effective interest rate? )...
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