1) first we have to convert period of repayment into no. of months and monthly interest rate,
and then calculate PVIFA (present value interest rate factor of annuity)
PVIFA = ((1+r)n -1)/((1+r)n *r)
where r = monthly interest rate
n = period of repayment (months)
payment per month = amount of loan/PVIFA
2)
the rate of return is found using RATE function in EXCEL
where nper = period of repayment (months)
pv = -cost of annuity
pmt = payment per month
You estimate that you will owe $45,300 in student loans by the time you graduate. The...
Holiday Tours (HT) has an employment contract with its newly hired CEO. The contract requires a lump sum payment of $28 million be paid to the CEO upon the successful completion of her first three years of service. HT wants to set aside an equal amount of money at the end of each year to cover this anticipated cash outflow and will earn 6.5 percent on the funds. How much must HT set aside each year for this purpose? $2,472,882.51...
4- Southern Tours is considering acquiring Holiday Vacations. Management believes Holiday Vacations can generate cash flows of $187,000, $220,000, and $245,000 over the next three years, respectively. After that time, they feel the business will be worthless. Southern Tours has determined that a 13.5 percent rate of return is applicable to this potential acquisition. What is Southern Tours willing to pay today to acquire Holiday Vacations?
15) You estimate that you will owe $40,200 in student loans by the time you graduate. If you want to have this debt paid in full within 10 years, how much must you pay each month if the interest rate is 4.35 percent, compounded monthly? A) $414.28 15) E) $411.09 D) $413.73 C) $442.50 B) $436.05 16) Do-Well bonds have a face value of $1,000 and are currently quoted at 867.25. The bonds have coupon rate of 6.5 percent. What...
4. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $150,000 today or receive payments of $1,627.89 a month for 10 years. You can earn 7.5 percent on your money. Which option should you take and why?
Atlas Insurance wants to sell you an annuity which will pay you $600 per quarter for 20 years. You want to earn a minimum rate of return of 5.0 percent compounded quarterly. What is the most you are willing to pay as a lump sum today to buy this annuity?
You own an annuity due contract that will pay you $3,000 per year for 12 years. You need money to pay back a loan in 5 years, and you are afraid if you get the annuity payments annually you will spend the money and not be able to pay back your loan. You decide to sell your annuity for a lump sum of cash to be paid to you five years from today. If the interest rate is 8%, what...
You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $95,000 today or receive payments of $1,020 a month for ten years. You can earn 5% on your money. Which option should you take and why? You should accept the payments because they are worth $101,207.63 today. You should accept the payments because they are worth $96,166.98 today. You...
Practice Questions 1. You wish to set aside some money today in order to provio when they go to college. You cousin will begin college in 3) day they begin college and your investment account can earn aside to make your plan work? in order to provide 24 payments of $500 to your cousin in college in 3 years. If the first payment begins on the account can earn J12=4.8%, how much must you set 2. Mr. Smith just purchased...
1. You just inherited some money, and a broker offers to sell you an annuity that pays $32,200 at the end of each year for 50 years. You could earn 8% on your money in other investments with equal risk. What is the most you should pay today for the annuity? 2. You have a chance to buy an annuity that pays $85,000 at the beginning of each year for 20 years. You could earn 12.5% on your money in...
If you invest $10,000 today and earn a 20% annual internal rate of return (IRR) over five years (with all of the proceeds received at the end of the fifth year), then the amount you will receive at the end of the fifth year is: How much would you pay today for an investment offering a lump sum of $100,000 in five years if you hoped to earn an annual rate of return of 25%? You invest $300,000 today and...