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Exercises 3

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22 views

Exercises 3

Uploaded by

giang vũ
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Name: ………………………………………………. ID: ………………………………..

PRINCIPLES OF FINANCE

EXERCISES 3

1. You are offered an annuity that will pay $24,000 per year for 11 years (the first payment
will occur one year from today). If you feel that the appropriate discount rate is 13%, what
is the annuity worth to you today?
2. If you deposit $16,000 per year for 12 years (each deposit is made at the end of each year)
in an account that pays an annual interest rate of 14%, what will your account be worth at
the end of 12 years?
3. You plan to borrow $389,000 now and repay it in 25 equal annual installments (payments
will be made at the end of each year). If the annual interest rate is 14%, how much will
your annual payments be?
4. You are valuing an investment that will pay you $27,000 per year for the first ten years,
$35,000 per year for the next ten years, and $48,000 per year the following ten years (all
payments are at the end of each year). If the appropriate annual discount rate is 9.00%,
what is the value of the investment to you today?
5. John and Peggy recently bought a house. They financed the house with a $125,000, 30-
year mortgage with a nominal interest rate of 7 percent. Mortgage payments are made at
the end of each month. What total dollar amount of their mortgage payments during the
first three years will go towards repayment of principal?
6. You are valuing an investment that will pay you $26,000 per year for the first 9 years,
$34,000 per year for the next 11 years, and $47,000 per year the following 14 years (all
payments are at the end of each year). Another similar risk investment alternative is an
account with a quoted annual interest rate of 9.00% with monthly compounding of interest.
What is the value in today's dollars of the set of cash flows you have been offered?
7. You are told that if you invest $11,100 per year for 19 years (all payments made at the
beginning of each year) you will have accumulated $375,000 at the end of the period.
What annual rate of return is the investment offering?
8. You are planning for retirement 34 years from now. You plan to invest $4,200 per year
for the first 7 years, $6,900 per year for the next 11 years, and $14,500 per year for the
following 16 years (assume all cash flows occur at the end of each year). If you believe
you will earn an effective annual rate of return of 9.7%, what will your retirement
investment be worth 34 years from now?
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