Present value. A smooth used-car salesman who smiles considerably is
offering you a great deal on a preowned car. He says, For only six
annual payments of $2,500, this beautiful 1998 Honda Civic can be
yours. If you can borrow money at 8%, what is the pri

Fully amortized loan (annual payments for principal and interest with
the same amount each year). Determine the cash flow to the woman
under a fully amortized loan, in which Ponzi will make equal annual
payments at the end of each year so that the final p

Amortization schedule. Ponzi may choose to pay off the loan early if
interest rates change during the next ten years. Determine the ending
balance of the loan each year under three different payment plans: a
discount loan, an interest-only loan, and an am

Estimating the annual interest rate with an ordinary annuity. Fill in the
missing annual interest rates in the following table for an ordinary
annuity stream.
Number of Payments
or Years
Future Value
Annuity
10
0
$500
20
$25,000
$346.97
30
0
$1,946.73
100

Estimating the annual interest rate with an ordinary annuity. Fill in the
missing annual interest rates in the following table for an ordinary
annuity stream.
Number of Payments
or Years
Future Value
Annuity
10
0
$500
20
$25,000
$346.97
30
0
$1,946.73
100

Chapter 11
The Cost of Capital
Questions
1. From what sources can a company raise capital? Do these different sources of
capital all charge the same rate? Why or why not?
A company can borrow from owners, preferred stockholders, banks, non-bank lenders,
s

Chapter 6
Bonds and Bond Valuation
Questions
1. What is a bond? What determines the price of this financial asset?
A bond is a promised set of future payments from the issuer to the buyer of the bond
where a formal agreement states the timing and amount o

Chapter 9
Capital Budgeting Decision Models
Questions
1. How does a business determine if a project (new product or service) is
worthwhile?
Projects are accepted or rejected based on the use of one of many capital budgeting
models. Using the cash flow of

Lecture 5: REMEDIES, MORAL RIGHTS & PERFORMERS RIGHTS
Background Reading:
Frankel: pp 299 327
Sumpter: pp 59-66 and 132-137
REMEDIES FOR INFRINGEMENT OF COPYRIGHT
Remedies are available to copyright owners and to exclusive licensees. Copyright
infringem

Chapter 7
Stocks and Stock Valuation
Questions
1. What are three key features of common stock?
There are many features to choose from but here is a list of three key features:
(1) Residual Claim: the common stock shareholder is entitled to all assets and

Lecture 4: COPYRIGHT INFRINGEMENT
Readings:
Frankel: Ch 6 and pp 261-297
Sumpter: Ch 2
Legal action may only be taken against a person who infringes copyright by the copyright
owner, and/or the exclusive licensee.
A. Primary and Secondary Infringement
P

Fully amortized loan (annual payments for principal and interest with
the same amount each year). Determine the cash flow to the woman
under a fully amortized loan, in which Ponzi will make equal annual
payments at the end of each year so that the final p

19. Interest-only loan (regular interest payments each year and principal
at end). Determine the cash flow to the woman under an interest-only
loan, in which Ponzi will pay the annual interest expense each year and
pay the principal back at the end of the

19. Interest-only loan (regular interest payments each year and principal
at end). Determine the cash flow to the woman under an interest-only
loan, in which Ponzi will pay the annual interest expense each year and
pay the principal back at the end of the

Present value of an ordinary annuity. Fill in the missing present values in
the following table for an ordinary annuity.
Number of Payments or
Annual Interest Rate
Years
Future Value
Annuity
10
6%
0
$250
20
12%
0
$3,387.88
25
4%
0
$600
360
1%
0
$2,571.53

Different Cash Flow. Given the following cash inflow at the end of each
year, what is the future value of this cash flow at 6%, 9%, and 15%
interest rates at the end of the seventh year?
Year 1Year 2Year 3Years 4 through 6
Year 7
ANSWER
FV at 6%:
FV FV at

Payments. Sam Hinds, a local dentist, is going to remodel the dental
reception area and two new workstations. He has contacted A-Dec, and
the new equipment and cabinetry will cost $18,000. A-Dec will finance
the equipment purchase at 7.5% over a six-year

Payments. Sam Hinds, a local dentist, is going to remodel the dental
reception area and two new workstations. He has contacted A-Dec, and
the new equipment and cabinetry will cost $18,000. A-Dec will finance
the equipment purchase at 7.5% over a six-year

Discount loan (interest and principal at maturity). Determine the cash
flow to the woman under a discount loan, in which Ponzi will have a
lump-sum payment at the end of the contract.
ANSWER
FV = $25,000 1.1010 = $25,000 2.593742 = $64,843.56

Discount loan (interest and principal at maturity). Determine the cash
flow to the woman under a discount loan, in which Ponzi will have a
lump-sum payment at the end of the contract.

Annuity due. Reginald is about to lease an apartment for the year. The
landlord wants the lease payments paid at the start of the month. The
twelve monthly payments are $1,300 per month. The landlord says he
will allow Reginald to prepay the rent for the

Annuity due. Reginald is about to lease an apartment for the year. The
landlord wants the lease payments paid at the start of the month. The
twelve monthly payments are $1,300 per month. The landlord says he
will allow Reginald to prepay the rent for the

Annuity due. Reginald is about to lease an apartment for the year. The
landlord wants the lease payments paid at the start of the month. The
twelve monthly payments are $1,300 per month. The landlord says he
will allow Reginald to prepay the rent for the

Perpetuities. The Canadian Government has once again decided to issue
a consol (a bond with a never-ending interest payment and no maturity
date). The bond will pay $50 in interest each year (at the end of the year)
but never return the principal. The cur

Inflation, nominal interest rates, and real rates. Given the information
below, estimate the nominal interest rate with the approximate nominal
interest rate equation and the true nominal interest rate equation.
Real Rate
Inflation Rate
3%
5%
8%
15%
1%
4%

Inflation, nominal interest rates, and real rates. Given the information
below, estimate the nominal interest rate with the approximate nominal
interest rate equation and the true nominal interest rate equation.
Real Rate
Inflation Rate
3%
5%
8%
15%
1%
4%

What is the primary difference between an annual bond and a semiannual bond? What changes do you need to make in finding the
price of a semi-annual bond versus an annual bond?
The primary difference is the timing and the amount of the cash flow of
the int

Whenwetalkabouttheyieldofabond,weusuallymeantheyield
tomaturityofthebond.Why?
In order to price a bond we need to know how long we will hold the
bond and thus the number of coupon payments we will receive. Because
each bondholder has potentially a differe

What is a bond? What determines the price of this financial asset?
A bond is a promised set of future payments from the issuer to the buyer
of the bond where a formal agreement states the timing and amount of
the future cash flow. The price of this financ