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problem1. Need $32,000 at the ending of 6 years. When you can earn 0.625% per month, how much would you want to invest today to meet your objective and aim?

In month January of 1997, the U.S. Consumer Price Index (CPI) stood at 159.1. By January of 2011, the level had increased to 220.2. What was the average yearly rate of inflation over this time period as measured by CPI? Please go out 2 decimal places.
At what interest rate would you be indifferent to lottery payout today of $2,229,389.17, or 25 equal yearly end-of-the-year payouts of $200,000? Please go out 2 decimal places.

problem2. Willis has won the $4,700,000 state lottery and intends to save all of money for his retirement. He selects to receive an annual cash flow of $235,000 for twenty years, with the first payment to be received one year from today. How much money will be in his retirement account in twenty years when he can reinvest his money at a yearly rate of 6.75%?

problem3. Why are there dissimilar interest rates on loans and securities? Please give at least 2 reasons.

problem4. You pay down 10% on a home with a buy price of $280,000. The bank will loan you the remaining balance of $252,000 at 8.23% APR. You have an option to create yearly payments or monthly payments on the loan. Both options have a 30-year payment schedule.

i) What are the annuity payments under annual plan?

ii) What are the annuity payments under monthly plan?

iii) In terms of the total cash outflows and the effective cost of borrowing, concise compare both plans.

problem5. Jayhawk Corp. is selling for $30 a share. In looking at the stream of dividends over the past ten years, you find out that the first dividend was $1.00 and last dividend was $2.00. Please go out 2 decimal places.

i) What is its growth rate?

ii) What is its anticipated return?

problem6. Winston Co. buys an asset for $60,000. This asset qualifies as a seven-year recovery asset under MACRS. Winston has a tax rate of 30%. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, correspondingly. When the asset is sold at the end of six years for $10,000, what is cash flow from disposal?

problem7. Labowski's Long Boards Inc. makes high-quality skateboards for recreational use. It wholesales its boards in groups of 10 for a package price of $1,500. Many of its customers have asked for credit terms to assist in buying the boards. The firm's finance department has estimated the following profile for its long boards and customer base:

Annual sales: 10,000 long board packages

Annual production costs per board package: $1,000

Lost sales when credit is not offered for customers: 1,200 long board packages

Default rate when all customers purchase on credit: 4.00%

i) What is the profit margin when the firm has a credit policy?

ii) What is the change in profit margin when the firm moves from a cash-only policy to a credit policy?

iii) What is the dollar value of bad debts the firm anticipates to accumulate over a year?

iv) Given the bad-debt dollar amount, what is the maximum average amount per customer that the firm must spend on credit screening?

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