Question

1. Investing $13,000 for each of eight years in an annuity due with a 6% interest rate, the value at the end will be: ____________________________________________

2. Last year Blueridge Corporation's sales were $280 million.  If sales grow at 10% per year, how large (in millions) will they be 5 years later?

$14000(.10)=1400

3. How much would $200,000 due in 50 years be worth today if the discount rate were 7.5%?

=PV(7.5%,,50,,-20000)

=537.78426453

=$537.78

4. Five years ago, Glow Go Inc. earned $7.50 per share.  Its earnings this year were $13.20.  What was the growth rate in earnings per share (EPS) over the 5-year period?

5. Dave has $15,000 invested in a bank that pays 4.2% annually.  How long will it take for his funds to quadruple?

6. You want to buy a new sports car 4 years from now, and you plan to save $6,700 per year, beginning one year from today.  You will deposit your savings in an account that pays 5.2% interest.  How much will you have just after you make the 4th deposit, 4 years from now?

7. What is  the rate of return you would earn if you paid $1,950 for a perpetuity that pays $185 per year?

8. You borrow 20,000 to be repaid in 3 equal payments at the end of each year.  The interest rate you are charged is 8%.  The annual payments are __________________.

9. The  interest paid in year 2 is _______________

10. Five-year Treasury bonds yield 5.5%.  The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year T-bonds is 0.4%. There is no liquidity premium on these bonds.  What is the real risk-free rate, r*?

11. You are contemplating a $400,000 30-year mortgage (there are no other costs). If the annual interest rate is 5%, what is the monthly mortgage payment?

12. You want to retire in 30 years as a millionaire. If 6% is an annual effective return on

a stock portfolio during this time period, how much should you invest each year starting the end of this year? ________________________________

13. What is the future value of $6,500 after 12 years if the appropriate interest rate is 6%, compounded semiannually?

14. Your target is to have $200,000 for your daughter’s college tuition. If you begin saving today equal amounts per year for 15 years at 8%, how much will you need to save per year?

15. Bank A charges 15 % compounded monthly on a loan, and Bank B charges 15.04% compounded quarterly.  Bank _______ is a better deal.  Explain why.

Answer 1

1]

Ending value is calculated using FV function in Excel :

rate = 6%

nper = 8

pmt = -13000

pv = 0

type = 1 (annuity due)

FV is calculated to be $136,387.11

А1 | x ft =FV(6%,8,-13000,0,1) B C D 2 1 A $136,387.11 |

2]

Ending value = beginning value * (1 + growth rate)number of years

Ending value = $280 million * (1 + 10%)5

Ending value = $450.94 million

3]

present value = future value / (1 + discount rate)number of years

present value = $200,000 / (1 + 7.5%)50

present value = $5,377.83

4]

Ending value = beginning value * (1 + growth rate)number of years

$13.20 = $7.50 * (1 + growth rate)5

growth rate = ($13.20 / $7.50)1/5 - 1

growth rate = 11.97%