Scribd
Upload
5 views

Assignment

Assignment for students of BSPA

Uploaded by

karamalisahito23
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
5 views

Assignment

Assignment for students of BSPA

Uploaded by

karamalisahito23
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Fundamentals of Finance MSB-320

Assignment No 3

Question 1:

Muffin Megabucks is considering two different savings plans. The first plan would have her
deposit $500 every six months, and she would receive interest at a 7 percent annual rate,
compounded semiannually. Under the second plan, she would deposit $1,000 every year with a
rate of interest of 7.5 percent, compounded annually. The initial deposit with Plan 1 would be
made six months from now and, with Plan 2, one year hence.

a. What is the future (terminal) value of the first plan at the end of 10 years?
b. What is the future (terminal) value of the second plan at the end of 10 years?
c. At the end of six years, how much is an initial $500 deposit followed by five year-end,
annual $100 payments worth, assuming a compound annual interest rate of (i) 10
percent? (ii) 5 percent? (iii) 0 percent?
d. At the end of three years, how much is an initial $100 deposit worth, assuming a
quarterly compounded annual interest rate of (i) 100 percent? (ii) 10 percent?
e. Why do your answers to Part (d) differ from those to Part (a)?
f. At the end of 10 years, how much is a $100 initial deposit worth, assuming an annual
interest rate of 10 percent compounded (i) annually? (ii) semiannually? (iii) quarterly?

Question 2:

The following are exercises in present values:

a. $100 at the end of three years is worth how much today, assuming a discount rate of(i)
100 percent? (ii) 10 percent? (iii) 0 percent?
b. What is the aggregate present value of $500 received at the end of each of the next three
years, assuming a discount rate of (i) 4 percent? (ii) 25 percent?
c. $100 is received at the end of one year, $500 at the end of two years, and $1,000 at the
end of three years. What is the aggregate present value of these receipts, assuming a
discount rate of (i) 4 percent? (ii) 25 percent?
d. $1,000 is to be received at the end of one year, $500 at the end of two years, and $ 100 at
the end of three years. What is the aggregate present value of these receipts assuming a
discount rate of (i) 4 percent? (ii) 25 percent?
e. Compare your solutions in Part (c) with those in Part (d) and explain the reason for the
differences.

Question 3:
Vernal Equinox wishes to borrow $ 10,000 for three years. A group of individuals agreed to lend
him this amount if he contracts to pay them $16,000 at the end of the three years. What is the
implicit compound annual interest rate implied by this contract (to the nearest whole percent)?

(Hint: Calculate the rate of interest=i)

Question 4:

You can earn 0.44% per month at your bank. If you deposit $2,700, how long must you wait
until your account has grown to $4,400?

Question 5:

What is the future value (as of 10 years from now) of an annuity that makes 12 annual payments
of $12,000 if the interest rate is 22% per year compounded quarterly?

Question 6:

You are making car payments of $ 2250/month for the next 8 years, you know that your car loan
has an interest rate of 25.4%, discounted monthly, what was the initial price of the car?

Question 7:

Mr. Khalid will receive $12,800 a year for the next 12 years from her trust. If a 12 percent
interest rate is applied, what is the current value of the future payments if the first receipt occurs
today?

Question 8:

An annuity makes 8 annual payments of $11,000 with the first payment coming today. What is
the future value of this from now on if the interest rate is 7%?

Question 9:

The Happy Hang Glide Company is purchasing a building and has obtained a $ 190,000
mortgage loan for 20 years. The loan bears a compound annual interest rate of 17 percent and
calls for equal annual installment payments at the end of each of the 20 years. What is the
amount of the annual payment?

(Hint: Calculate regular payment=R from the PV of ordinary annuity formula)

You might also like