Question

Directions: Complete all answers on separate paper. Use pencil for all problems. Show the formula first and your calculations. You can check your answer with the financial calculator, but do not just write down a number you got from your calculator. The problems count 23 points each and the discussion question counts 39 points for a total of 200 points. Use a pen to write the discussion question. (Assume 365 days per year for all calculations requiring daily interest rates.) Problems (23 points each) 1. Your father has promised to give you $500,000 when you graduate with your master's degree in international business from California International University. If you plan to graduate in exactly 5 years from now, how much money should he put in a savings account today to ensure he has the money to give you? Assume the interest rates will remain constant at 3.33%. 2. You like to gamble so you play the stock market! You bought 100 shares of Disney Company (they make movies!) for a price of $90 per share 4 years ago. Now, the price is $140 per share and you decided to sell ll your shares. During this time, you collected dividends of $1.75 per share each year. How much in dollar terms was your profit? What was your return on investment in per annum terms expressed as a percent? 3. You received your credit card statement and the company had added interest to your account from last month of $7.26 because you only paid part of the bill. The part you did not pay was equal to $740. If your billing cycle was 31 days last month and you did not make any new purchases, what annual interest rate are they charging you on your account? Jouun

Answer 1

Answer to Q#1 (First question in the list): Present value of future lumpsum cash flow = Future lumpsum cash flow/(1 + Interest rateNumber of years $500,000 Future lumpsum cash flow 3.33% Interest rate Number of years left to graduate 5 $424,461.06 [$500,000 / (1+3.33%)] Present value of future lumpsum cash flow So, Amount to be deposited today is $424,461 to meet father's aim to offer his son the agreed amount.