Exam1Practice

# Exam1Practice - 1 You want to have \$1 million to use for...

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1. You want to have \$1 million to use for retirement in 35 years. If you expect you can earn an effective annual return of 12% on an account that compounds monthly: How much do you need to deposit on a monthly basis if the first payment is made in one month? What if the first payment is made today (same total number of payments as before)? 2. An investment will provide you with \$100 at the end of each year for the next 10 years. a. What is the present value of these payments if the discount rate is 8% annually? b. What is the present value of the above if the payments are received at the beginning of each year? c. If you deposit the payments from Part A into an account earning 8%, what will the future value be in 10 years? d. What will the future value in 10 years be if you open the account with \$1,000 today, and then make the \$100 deposits at the end of each year? 3. You are considering preferred stock that pays a quarterly dividend of \$1.50 for the first 2 years and then is reduced to remain at \$1.00 indefinitely. If your desired return is 3% per quarter, how much would you be willing to pay? 4. You expect to receive some cash gifts from relatives at graduation two years from today.

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