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Exam 5: Discounted Cash Flow Valuation

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Question 61

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Uptown Insurance offers an annuity due with semiannual payments for 25 years at 6 percent interest.The annuity costs $200,000 today.What is the amount of each annuity payment?

A) $7,546.70
B) $7,600.00
C) $7,773.10
D) $7,800.00
E) $7,856.25

F) C) and D)
G) A) and B)

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Question 62

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A 4-year annuity of eight $6,200 semiannual payments will begin 6 years from now, with the first payment coming 6.5 years from now.If the discount rate is 7 percent, compounded semiannually, what is the value of this annuity 4 years from now?

A) $37,139.58
B) $38,399.20
C) $40,687.14
D) $41,811.67
E) $42,618.52

F) A) and B)
G) A) and C)

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Question 63

Multiple Choice

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You want to purchase a new condominium that costs $285,000.Your plan is to pay 30 percent down in cash and finance the balance over 30 years at 5.2 percent.What will be your monthly mortgage payment including principal and interest?

Christie is buying a new car today and is paying a $500 cash down payment.She will finance the balance at 6.3 percent interest.Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today.Which one of the following statements is correct concerning this purchase?

Bill just financed a used car through his credit union.His loan requires payments of $275 a month for five years.Assuming that all payments are paid on time, his last payment will pay off the loan in full.What type of loan does Bill have?

A credit card has an annual percentage rate of 12.9 percent and charges interest monthly.The effective annual rate on this account:

Industrial Tools owes you $38,600.This amount is seriously delinquent so you have offered to accept weekly payments for one year at an interest rate of 3 percent to settle this debt in full.What is the amount of each payment?

You have an outstanding loan with an EAR of 14.61 percent.What is the APR if interest is compounded monthly?

A preferred stock pays an annual dividend of $2.95.What is one share of this stock worth to you today if you require a rate of return of 8.2 percent?

You plan to save $200 a month for the next 24 years and hope to earn an average rate of return of 10.6 percent.How much more will you have at the end of the 24 years if you invest your money at the beginning rather than the end of each month?

Scott borrowed $2,500 today at an APR of 7.4 percent.The loan agreement requires him to repay $2,685 in one lump sum payment one year from now.This type of loan is referred to as a(n) :

RB Farworth will pay you $2,500 a year for 15 years in exchange for $25,000 today.What interest rate will you earn on this annuity?

Moonlight Industries just signed a sales contract with a new customer.JK will receive annual payments in the amount of $50,000, $96,000, $123,000, and $138,000 at the end of Years 1 to 4, respectively.What is this contract worth at the end of Year 4 if the firm earns 3.75 percent on its savings?

Kurt will receive $1,200 a month for five years from an insurance settlement.The first payment was received today.If he invests the full amount of each payment at a guaranteed 6.15 percent rate, how much will he have saved at the end of the five years?

Janice plans to save $80 a month, starting today, for 20 years.Kate plans to save $80 a month for 20 years, starting one month from today.Both Janice and Kate expect to earn an average return of 5.5 percent on their savings.At the end of the 20 years, Janice will have approximately _____ more than Janice.

Leann will receive $ 95,000 a year for 7years, starting today.If the rate of return is 6.8 percent, what are these payments worth today?

Jeffries & Sons is borrowing $95,000 for four years at an APR of 7.05 percent.The principal is to be repaid in equal annual payments over the life of the loan with interest paid annually.Payments will be made at the end of each year.What is the total payment due for Year 3 of this loan?

Hometown Builders is borrowing $195,000 today for four years.The loan is an interest-only loan with an APR of 7.65 percent.Payments are to be made annually.What is the amount of the first annual payment?

Assume you can save $8,500 at the end of Year 2, $9,300 at the end of Year 3, and $7,100 at the end of Year 6.If today is Year 0, what is the future value of your savings 10 years from now if the rate of return is 7.8 percent annually?

JK's is borrowing $132,000 for three years at an APR of 7.6 percent.The loan calls for the principal balance to be reduced by equal amounts over the life of the loan.Interest is to be paid in full each year.The payments are to be made annually at the end of each year.How much will be paid in interest over the life of this loan?