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110. Which of the following amounts is closest to the end value of investing $5,000 for 14 months at a stated annual interest rate of 6% compounded monthly? A. $5,293B. $5,345C. $5,352D.$5,362E. $6,183EAR = (1 + r/m)m-1 = [1 + (0.06/12)]12- 1 = 0.06167781End value = $5,000(1 + 0.06167781)14/12= $5,361.61Difficulty level: MediumTopic: EAR & FUTURE VALUEType: PROBLEMS111. Which of the following amounts is closest to the end value of investing $10,000 for 18 months at a stated annual interest rate of 12% compounded quarterly? EAR = (1 + r/m)m-1 = [1 + (0.12/4)]4-1 = 0.1255End value = $10,000(1 + 0.1255)1.5= $11,940.38Difficulty level: MediumTopic: EAR & FUTURE VALUEType: PROBLEMS4-116
Chapter 04 - Discounted Cash Flow Valuation112. Which of the following amounts is closest to the end value of investing $7,500 for 2.5 years at an effective annual interest rate of 12.36%. Interest is compounded semiannually. End value = $7,500(1 + 0.1236)2.5= $10,036.69Difficulty level: MediumTopic: FUTURE VALUEType: PROBLEMS113. If the stated rate of interest is 12% and it is compounded monthly, what is the effective annual interest rate? (1 + .12/12)12- 1 = 12.68%Difficulty level: MediumTopic: EARType: PROBLEMS4-117
Chapter 04 - Discounted Cash Flow Valuation114. What is the present value of a payment of $21,000 three years from now if the effective annual interest rate is 4%? A. $17,951B. $18,480C. $18,658D.$18,669E. $19,218PV = FV/(1 + r)n= $21,000/(1 + .04)3= $18,668.92Difficulty level: EasyTopic: PRESENT VALUE - SINGLE SUMType: PROBLEMS115. Thornton will receive an inheritance of $500,000 three years from now. Thorton's discount rate is 10% compounded semiannually. Which of the following values is closest to the amount that Thornton should accept today for the right to his inheritance? EAR = (1 + r/m)m-1 = [1 + (0.1/2)]2-1 = 0.1025PV = $500,000/(1 + 0.1025)3= $373,107.70Difficulty level: MediumTopic: PRESENT VALUE - FUTURE SUMType: PROBLEMS4-118
Chapter 04 - Discounted Cash Flow Valuation116. A mortgage instrument pays $1.5 million at the end of each of the next two years. An investor has an alternative investment with the same amount of risk that will pay interest at 8% compounded semiannually. Which of the following amounts is closest to what the investor should pay for the mortgage instrument? EAR = (1 + r/m)m-1 = (1 + 0.08/2)2-1 = 0.0816PV = $1.5/(1.0816)1+ $1.5/(1.0816)2= $2,669,041Difficulty level: EasyTopic: PRESENT VALUE - FUTURE SUMType: PROBLEMS117. You are to receive $75 per year indefinitely. The market rate of interest for these types of payments is 8%. The price you would pay for this stream is: PVperpertuity= C/r = $75/.08 = $937.50.Difficulty level: EasyTopic: PERPETUITYType: PROBLEMS4-119