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Assignment_1Summer2007[2]

# Assignment_1Summer2007[2] - AK/ADMS3530 3.0 Summer 2007...

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AK/ADMS3530 3.0 Summer 2007 Assignment #1 Instructions: (1) This assignment is to be done individually. You must sign and submit the standard cover page supplied as the last page of this assignment. (2) This assignment is due at the start of class, the week of June 4, 2007. This assignment can be typewritten or handwritten. Work that is too difficult to read due to messiness and poor handwriting will receive zero credit. You must show your work to receive full credit. (3) This assignment carries a total mark of 100 points. Question 1 - Ch.4 TVM (15 marks) You issue debt of \$30,000 on October 1, 2007. You decide to payback this debt by making equal payments every three months during the next 4 years. The first payment was starts on January 1, 2008. (a) If the effective annual rate (EAR) was 12%, what was the amount of each payment? (5 marks) (b) What is the outstanding debt just after the 6 th payment? (5 marks) (c) If just after the 6 th payment, the effective annual rate increases to 14% and you decide to keep the same payments except for the last one which has to be greater. What would be the amount of the last payment? (5 marks) Question 2 – Ch.4 TVM (15 marks) Consider the following monthly cash flows (see the diagram below): - Cash flows of an amount X are made for months 1, 3, 5, …, 17 and 19 (the 10 odd-numbered months) - Cash flows of an amount Z are made for months 2, 4, 6, …, 18 and 20 (the 10 even-numbered months) Today 1 2 3 4 0 19 20 X Z X Z X Z

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ADMS3530 3.0 Assignment #1 Question 2 (cont.) The APR is 6% and is compounded on a monthly basis. (a) How much money will be accumulated 20 months from now if X = \$2,000 and Z = \$0? (5 marks) (b) What is the present value of these cash flows today if X = \$2,000 and Z = - \$700? (5 marks) (c) If the present value of these cash flows today is \$14,000, and the future
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Assignment_1Summer2007[2] - AK/ADMS3530 3.0 Summer 2007...

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