FIN 251 Ch. 6 HW

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University of Scranton *

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Finance

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Feb 20, 2024

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Chapter 6 Points Name 1 3 2 3 3 4 4 4 5 6 6 2 7 2 8 6 9 4 10 6 40 link link link link link link link link link link
Calculating Present Values Present Value Interest Rate 1 10.00% 680 a.) $2,779.30 618 18.00% 680 b.) $2,323.27 576 24.00% 680 c.) $2,054.62 548 Table of Contents Royal Inc. has identified an investment project with estimated cash flows: Year 1 - $680 Year 2 - $810 Year 3 - $940 Year 4- $1,150 Estimate the PV with discount rates of: a.) 10% b.) 18% c.) 24%
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Years 2 3 4 810 940 1,150 669 706 785 1 point 810 940 1,150 582 572 593 1 point 810 940 1,150 527 493 486 1 point
Calculating Future Values Year Future Value Interest Rate 1 2 8.00% 1,225 1,345 1,543 1,569 11.00% 1,225 1,345 1,675 1,657 24.00% 1,225 1,345 2,336 2,068 Table of Contents ABC Inc. has identified an investment project with the following estimated cash flows: Year 1 - $1225 Year 2 - $1345 Year 3 - $1460 Year 4- $1590 Estimate the Future Value with discount rates of: a.) 8% b.) 11% c.) 24% Important *Hint- Remember these are FV not PV. *Count how many periods each pmt will earn interest It helps to draw a timeline and count how many periods of compounding there will be for each cash flow
rs 3 4 1,460 1,590 1,577 1,590 $6,279 1 Point 1,460 1,590 1,621 1,590 $6,543 1 Point 1,460 1,590 1,810 1,590 $7,804 1 Point
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Calculating Annuity Cashflows N 20 I/Y 6.30% PV $40,000 PMT $3,572.79 Pmt Function 4 points FV 0 Table of Contents If you put up $40,000 today in exchange for a 6.3%, 20 year annuity, what will the annual cash flow be?
Calculating Annuity Cashflows a. N 20 b. N 40 Rate 9.70% Rate 9.70% PV 0 PV 0 PMT $4,000 PMT $4,000 FV Function $221,439 FV $1,631,984 2 Points 2 Points Table of Contents If you deposit $4,000 at the end of each of the next 20 years into an account paying 9.7% interest, how much money will you have in the account in: a.) 20 years b.) 40 years
Loan Amoritzation 5 Amount 50,000.00 Beginning Total Interest Year Balance Payment Paid 1 $50,000 $12,358 $3,750 2 $41,392 $12,358 $3,104 3 $32,138 $12,358 $2,410 4 $22,190 $12,358 $1,664 5 $11,496 $12,358 $862 6 Points Total Table of Contents Loan Term (Years) Royal Bank offers you a 5 year loan for $50,000 at an annual interest rate of 7.5%. a.) What will your annual loan payment be? b.) Fill in the Amortization table for the 5 years Step 1.) *Use PMT Function for Total Payment Step 2.) *Fill in the amortization table *Only use cell references
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Rate 7.50% Principal Ending Paid Balance $8,608 $41,392 $9,254 $32,138 $9,948 $22,190 $10,694 $11,496 $11,496 $0
N 7 Rate 7.8% PV $298,804 PMT $57,000 FV 0 2 Points Table of Contents Your company will generate an estimated $57,000 in annual revenue each year for the next 7 years from an investment in a new warehouse. If the appropriate interest rate is 7.8%, what is the present value of all estimated future cash flows?
PMT $40,000 Rate 5.10% PV $784,314 2 Points Table of Contents The ABC Life insurance company is trying to sell you an investment policy that will pay you and your heirs $40,000 per year forever. If the required return on this investment is 5.1%, how much will you pay for this policy?
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Number of Times Compounded 7.0% Quarterly 4 7.19% 17.0% Monthly 12 18.39% 13.0% Daily 365 13.88% 6 points Table of Contents Stated Rate Effective Annual Rate Formula Calculate the Effective Annual Rates of the four stated rates. Use the EAR formula and EFFECT function to calculate. (They will be the same answer for both)
7.19% 18.39% 13.88% Effective Annual Rate Function
Number of Times Compounded 12.0% Semi-Annual 2 12.40% 11.1% Monthly 12 11.70% 9.1% Weekly 52 9.50% 7.6% Daily 365 7.90% 4 Points Table of Contents Stated Rate Effective Annual Rate Calculate the Stated Annual Rates (Advertised) of the four Effective rates. (nominal Function)
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Calculating EAR First National Bank Quoted Rate 12.40% Compounded Monthly 12 Effect Annual Rate (Formula) 13.13% Effect Annual Rate (Function) 13.13% First United Bank 6 Points Table of Contents As a potential borrower , which bank would y First National Bank charges 12.4% compounded monthly on its business loans. First United Bank charges 12.7% compounded semi-annually. As a potential borrower, which bank would you go for the new loan?
First United Bank Quoted Rate 12.70% Compounded semiannually (2) 2 Effect Annual Rate (Formula) 13.10% Effect Annual Rate (Function) 13.10% you go for a new loan?