Task is to understand how to solve each problem and to be able to explain the solution process used. Show all calculations, step by step, using Excel. Grade will depend on the quality of explanations.

7-1. Manager Paul Smith believes an investment project will have the following yearly cash flows with the associated probabilities throughout its life of five years. Calculate the standard deviation and coefficient of variation of the cash flows.

Cash Flows ($)

$10,000

$13,000

$16,000

$19,000

$22,000

$25,000

$28,000

Probability of Occurrence

.05

.10

.20

.30

.20

.10

.05

Discuss the financial risk of an investment opportunity. How risky is the investment opportunity in problem 7-1?

8-1. What is the future value of $1,000 invested today if you earn 7 percent annual interest for five years?

Explain the concept of future value.

8-7. What is the present value of $20,000 to be received ten years from now using a 12 percent annual discount rate?

Explain the concept of present value.

8-13. What is the present value of a $500 ten-year annual ordinary annuity at a 6 percent annual discount rate?

Explain the concept of an annuity.

What are the two characteristics of the type of financial annuity in this problem that allow you to use the formulas in Excel, the future value of an annuity interest factor and the present value of an annuity interest factor tables as well as a standard financial calculator?

8-41. Amy Jolly deposited $1,000 in a savings account. The annual interest rate is 10 percent, compounded semiannually. How many years will it take for her money to grow to $2,653.30?

How would you solve this problem if the interest were compounded quarterly?

8-55. Sarah has $30,000 for a down payment on a house and wants to borrow $120,000 from a mortgage banker to purchase a $150,000 house. The mortgage loan is to be repaid in monthly installments over a thirty-year period. The annual interest rate is 9 percent. How much will Sarah's monthly mortgage payments be?

How would you solve this problem if the first mortgage payment was due at the same time as the down payment?

7-1. Manager Paul Smith believes an investment project will have the following yearly cash flows with the associated probabilities throughout its life of five years. Calculate the standard deviation and coefficient of variation of the cash flows.

Cash Flows ($)

$10,000

$13,000

$16,000

$19,000

$22,000

$25,000

$28,000

Probability of Occurrence

.05

.10

.20

.30

.20

.10

.05

Discuss the financial risk of an investment opportunity. How risky is the investment opportunity in problem 7-1?

8-1. What is the future value of $1,000 invested today if you earn 7 percent annual interest for five years?

Explain the concept of future value.

8-7. What is the present value of $20,000 to be received ten years from now using a 12 percent annual discount rate?

Explain the concept of present value.

8-13. What is the present value of a $500 ten-year annual ordinary annuity at a 6 percent annual discount rate?

Explain the concept of an annuity.

What are the two characteristics of the type of financial annuity in this problem that allow you to use the formulas in Excel, the future value of an annuity interest factor and the present value of an annuity interest factor tables as well as a standard financial calculator?

8-41. Amy Jolly deposited $1,000 in a savings account. The annual interest rate is 10 percent, compounded semiannually. How many years will it take for her money to grow to $2,653.30?

How would you solve this problem if the interest were compounded quarterly?

8-55. Sarah has $30,000 for a down payment on a house and wants to borrow $120,000 from a mortgage banker to purchase a $150,000 house. The mortgage loan is to be repaid in monthly installments over a thirty-year period. The annual interest rate is 9 percent. How much will Sarah's monthly mortgage payments be?

How would you solve this problem if the first mortgage payment was due at the same time as the down payment?

## This question was asked on May 02, 2010.

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