1 D = {(1- (₁²+)²) PV(C, r, T) = - C PV (C,r, g, T): - r-g g (1-(1+8)) = (1+ APR)* k 1. Growing annuity: A small business borrows money from the bank. It will make annual repayments every year starting in one year. The payments grow at a rate of 1% a year. The interest rate is 2.5% and the business decides to make 20 payments. a. If the first payment amount is equal to 4,000, what is the loan amount (PV of the payments)? b. What is the account balance in one year? 1 + EAR= b. For the following changes, what is the effect on the loan amount (PV of payments)? Please circle. Interest rate increases: higher or lower PV higher or lower PV Annual payment increases Number of period increases: higher or lower PV Payment growth rate increases: higher or lower PV c. If the business wants to borrow 75,000, what does the first annual payment need to be? c. What is the EAR (effective annual rate)? 2. Interest rates: You open up a bank account and deposit 10,000. The APR on the account is 4.4% and interest is paid quarterly. a. What is the per-period interest rate?
1 D = {(1- (₁²+)²) PV(C, r, T) = - C PV (C,r, g, T): - r-g g (1-(1+8)) = (1+ APR)* k 1. Growing annuity: A small business borrows money from the bank. It will make annual repayments every year starting in one year. The payments grow at a rate of 1% a year. The interest rate is 2.5% and the business decides to make 20 payments. a. If the first payment amount is equal to 4,000, what is the loan amount (PV of the payments)? b. What is the account balance in one year? 1 + EAR= b. For the following changes, what is the effect on the loan amount (PV of payments)? Please circle. Interest rate increases: higher or lower PV higher or lower PV Annual payment increases Number of period increases: higher or lower PV Payment growth rate increases: higher or lower PV c. If the business wants to borrow 75,000, what does the first annual payment need to be? c. What is the EAR (effective annual rate)? 2. Interest rates: You open up a bank account and deposit 10,000. The APR on the account is 4.4% and interest is paid quarterly. a. What is the per-period interest rate?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:- € (1- (²+2)²)
1
(1+r)T
PV(C,r, T) = -
PV (C,r,g, T) =
с
1+ g
- (-(+))
r-g
1+r
2 = (1 + APR ²
k
1. Growing annuity:
A small business borrows money from the bank. It will make annual repayments every year starting in one
year. The payments grow at a rate of 1% a year. The interest rate is 2.5% and the business decides to make
20 payments.
a. If the first payment amount is equal to 4,000, what is the loan amount (PV of the payments)?
1 + EAR = 1+
b. For the following changes, what is the effect on the loan amount (PV of payments)? Please circle.
Interest rate increases:
higher or lower PV
higher or lower PV
higher or lower PV
higher or lower PV
b. What is the account balance in one year?
Annual payment increases:
Number of period increases:
Payment growth rate increases:
c. If the business wants to borrow 75,000, what does the first annual payment need to be?
c. What is the EAR (effective annual rate)?
2. Interest rates:
You open up a bank account and deposit 10,000. The APR on the account is 4.4% and interest is paid
quarterly.
a. What is the per-period interest rate?
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