Exam 6: Discounted Cash Flow Valuation

You just acquired a home mortgage for 30 years in the amount of $184,500 at 4.65 percent interest, compounded monthly. How much of the first payment will be interest if the loan is repaid in equal monthly payments?

Phil can afford $240 a month for five years for a car loan. If the interest rate is 8.5 percent, how much can he afford to borrow to purchase a car? 

Troy will receive $7,500 at the end of Year 2. At the end of the following two years, he will receive $9,000 and $12,500, respectively. What is the future value of these cash flows at the end of Year 6 if the interest rate is 8 percent? 

Jones Stoneware has a liability of $75,000 due four years from today. The company is planning to make an initial deposit today into a savings account and then deposit an additional $10,000 at the end of each of the next four years. The account pays interest of 4.5 percent. How much does the firm need to deposit today for its savings to be sufficient to pay this debt? 

 Your credit card charges you .85 percent interest per month. This rate when multiplied by 12 is called the ________ rate.

You just settled an insurance claim that calls for increasing payments over a 10-year period. The first payment will be paid one year from now in the amount of $5,000. The following payments will increase by 3.5 percent annually. What is the value of this settlement to you today if you can earn 6.5 percent on your investments? 

You just won the magazine sweepstakes and opted to take unending payments. The first payment will be $50,000 and will be paid one year from today. Every year thereafter, the payments will increase by 2.5 percent annually. What is the present value of your prize at a discount rate of 7.9 percent? 

An insurance annuity offers to pay you $1,000 per quarter for 20 years. If you want to earn a rate of return of 6.5 percent, compounded quarterly, what is the most you are willing to pay as a lump sum today to obtain this annuity?

A loan where the borrower receives money today and repays a single lump sum on a future date is called a(n) ________ loan. 

Your grandfather left you an inheritance that will provide an annual income for the next 20 years. You will receive the first payment one year from now in the amount of $2,500. Every year after that, the payment amount will increase by 5 percent. What is your inheritance worth to you today if you can earn 7.5 percent on your investments? 

Your credit card company charges you 1.15 percent interest per month. What is the APR? 

Assume a 1-year loan for $6,000 has an interest rate of 4.5 percent, compounded annually. How much additional interest would be charged if the rate had compounded continuously rather than annually? 

Theresa adds $1,500 to her savings account on the first day of each year. Marcus adds $1,500 to his savings account on the last day of each year. They both earn 6.5 percent annual interest. What is the difference in their savings account balances at the end of 35 years?

DLM preferred stock has a dividend yield of 5.2 percent. The stock is currently priced at $43.40 per share. What is the amount of the annual dividend? 

You grandfather invested $16,600 years ago to provide annual payments of $700 a year to his heirs forever. What is the rate of return? 

As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. If you can earn 6 percent on your money, which option should you take and why? 

You would like to provide $125,000 a year forever for your heirs. How much money must you deposit today to fund this goal if you can earn a guaranteed 4.5 percent rate of return? 

You need $25,000 today and have decided to take out a loan at 7 percent interest for five years. Which one of the following loans would be the least expensive for you? Assume all loans require monthly payments and that interest is compounded on a monthly basis. 

 The interest rate that is most commonly quoted by a lender is referred to as the:

John's Auto Repair just obtained an interest-only loan of $35,000 with annual payments for 10 years and an interest rate of 8 percent. What is the amount of the loan payment in Year 8?