Financial Management
For each problem show the steps to get answers. Can use another paper to write each step or space below.
1. After placing $8,000 in a savings account paying annual compound interest of 8%, calculate the amount that will accumulate if it is left for 8 years?
2. After placing $13,000 in a savings account paying annual compound interest of 3%, Leona will accumulate what amount if she leaves the money in the bank for 4 years?
3. What is the present value of a $650 perpetuity discounted back to the present at 10%? What is the present value of the perpetuity?
4. To pay for your education, you have taken out $28,000 in student loans. If you make monthly payments over 13 years at 5% compounded monthly, how much are your monthly student loan payments?
5.How much do you have to deposit today so that, beginning 11 years from now, you can withdraw $9,000 a year for the next 8 years (periods 11 through 18) plus an additional amount of $18,000 in the last year (period 18)? Assume an interest rate of 6%.
6. On December 5, 2007, the common stock of Google, Inc. (GOOG) was trading at $698.51. One year later, the shares sold for $301.99. Google has never paid a common stock dividend. What rate of return would you have earned on your investment had you purchased the shares on December 5, 2007? The rate of return you would have earned is what percent?
7. Caswell Enterprises had the following end-of-year stock prices over the last five years and paid no dividends.
Time Caswell
1 $12
2 9
3 7
4 6
5 8
8. Calculate the average rate of return for each year from the above information.
What is the arithmetic average rate of return earned by investing in Caswell's stock over this period?
What is the geometric average rate of return earned by investing in Caswell's stock over this period?
Considering the beginning and ending stock prices for the five-year period are the same, which type of average rate of return best describes the annual rate of return earned over the period (arithmetic or geometric)?
The annual rate of return at the end of year 3 is what percent?
9. Syntex is considering an investment in one of two stocks. Given the information that follows, which investment is better based on the risk (the standard deviation) and return? Given the information in the table, what percent is the rate of return for Stock B?
Common Stock A
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Common Stock B
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Probability
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Return
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Probability
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Return
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0.20
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10%
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0.10
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- 7%
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0.60
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16%
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0.40
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5%
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0.))0
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21%
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0.40
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13%
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0.10
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20%
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10.The common stock of Plaxo Enterprises had a market price of $9.45 on the day you purchased it just 1 year ago. During the past year, the stock paid a dividend of $1.43 and closed at a price of $11.66. What rate of return did you earn on your investment in Plaxo's stock? The rate of return you earned on Plaxo's stock is what percent?