(e.g., 32.16))
Present value
$
370,013.62
Worksheet
Learning Objective: 06-01 How to
determine the future and present
value of investments with multiple
cash flows.
Your company will generate $65,000 in annual revenue each year for the next eight years from a new
information database. If the appropriate interest rate is 8.25 percent, what is the present value of the
savings?
(Do not round intermediate calculations and round your final answer to 2 decimal places.
(e.g., 32.16))
Present value
$
370,013.62 ± 2%
Explanation:
To find the PVA, we use the equation:
PVA =
C
({1
−
[1/(1 +
r
)
t
]} /
r
)
PVA = $65,000{[1
−
(1/1.0825
8
)] / 0.0825} = $370,013.62
Calculator Solution:
Note: Intermediate answers are shown below as rounded, but the full answer was used to complete
the calculation.
Enter
8
8.25%
$65,000
N
I/Y
PV
PMT
FV
Solve for
$370,013.62

3.
award:
10 out of
10.00
points
4.
award:
10 out of
10.00
points
The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs
$27,000 per year forever. If the required return on this investment is 6.30 percent, how much will you pay for
the policy?
(Round your answer to 2 decimal places. (e.g., 32.16))
Present value
$
428,571.43
Worksheet
Learning Objective: 06-01 How to
determine the future and present
value of investments with multiple
cash flows.
The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs
$27,000 per year forever. If the required return on this investment is 6.30 percent, how much will you pay for
the policy?
(Round your answer to 2 decimal places. (e.g., 32.16))
Present value
$
428,571.43 ± 2%
Explanation:
This cash flow is a perpetuity. To find the PV of a perpetuity, we use the equation:
PV =
C
/
r
PV = $27,000 / 0.0630 = $428,571.43
You want to buy a new sports coupe for $90,500, and the finance office at the dealership has quoted you a
7.2 percent APR loan for 48 months to buy the car.
What will your monthly payments be?
(Do not round intermediate calculations and round your final
answer to 2 decimal places. (e.g., 32.16))
Monthly payment
$
2,175.54
What is the effective annual rate on this loan?
(Do not round intermediate calculations and round your
final answer to 2 decimal places. (e.g., 32.16))
Effective annual rate
7.46
%
Worksheet
Learning Objective: 06-02 How loan
payments are calculated and how to
find the interest rate on a loan.
Learning Objective: 06-04 How
interest rates are quoted (and
misquoted).
You want to buy a new sports coupe for $90,500, and the finance office at the dealership has quoted you a

7.2 percent APR loan for 48 months to buy the car.
What will your monthly payments be?
(Do not round intermediate calculations and round your final
answer to 2 decimal places. (e.g., 32.16))
Monthly payment
$
2,175.54 ± 2%
What is the effective annual rate on this loan?
(Do not round intermediate calculations and round your
final answer to 2 decimal places. (e.g., 32.16))
Effective annual rate
7.44 ± 2%
%
Explanation:
We first need to find the annuity payment. We have the PVA, the length of the annuity, and the interest rate.

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- Fall '13
- Dalgic
- Interest Rates, Annual Percentage Rate, Corporate Finance, Net Present Value, decimal places, intermediate calculations