Problem 1. If today is Year 0, what is the future value of the following cash flows 10 years from now? Assume an interest rate of 6.9 percent per year.
|
Year
|
Rate
|
PV
|
FVF
|
FV
|
|
2
|
6.9%
|
8500
|
1.7054
|
14495.75
|
|
3
|
6.9%
|
9300
|
1.5953
|
14836.34
|
|
6
|
6.9%
|
7100
|
1.3059
|
9271.91
|
|
|
|
|
$ 38,604.00
|
Problem 2. You have just purchased a new warehouse. To finance the purchase, you've arranged for a 25-year mortgage for 80 percent of the $1,800,000 purchase price. The monthly payment on this loan will be $10,800. What is the APR?
Problem 3. You want to borrow $36,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $750, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 60-month APR loan?
Problem 4. If the appropriate discount rate for the following cash flows is 11.7 percent per year, what is the present value of the cash flows?
|
Year
|
Cash Flow
|
|
1
|
21,600
|
|
2
|
25,900
|
|
3
|
38,700
|
|
4
|
16,200
|
Problem 5. Eastern Shore Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $10,000 per year forever. If the required return on this investment is 5.5 percent, how much will you pay for the policy?