Exam 4: Discounted Cash Flow Valuation

A 5-year loan in the amount of $48,000 is to be repaid in equal annual payments.What is the remaining principal balance after the third payment if the interest rate is 5 percent,compounded annually?

A bank is loaning $5,000 for 3 years at an interest rate of 7.5 percent.How much additional interest can the bank earn if it compounds interest continuously rather than annually?

Antonio is going to receive $25,000 today as an insurance settlement.In addition,he will receive $12,000 1 year from today and $10,000 2 years from today.If he invests these funds,how much will he have saved when he retires 32 years from now if he earns an average annual return of 6.7 percent?

You are considering a job that offers a starting bonus of $2,500,paid immediately,and an annual salary of $44,000,$47,000,and $50,000 for the next 3 years,respectively.The annual salary is paid at the end of each year.What is this offer worth today at a discount rate of 5.6 percent?

Kate starts saving for retirement today and plans to make annual contributions into this retirement account.Which one of these is most apt to increase the total amount she has saved on the day she retires? Assume she earns a positive rate of return each year.

You desperately need some money and only your "miserly" friend has any.He agrees to loan you the money you need if you make payments of $25 a month for the next 6 months.In keeping with his reputation,he requires that the first payment be paid today.He also charges you 1.65 percent interest per month.How much money are you borrowing?

Which one of the following statements concerning interest rates is correct?

Today,you are retiring.You have a total of $387,419 in your retirement savings and have the funds invested at a guaranteed 3.68 percent,compounded monthly.You want to withdraw $1,500 at the beginning of every month,starting today.You also want the withdrawals to stop when your account balance declines to $100,000.For how many years can you make withdrawals?

A growing annuity is a set of

Beta preferred stock pays an annual dividend of $4.80 a share.How much should you pay to purchase one share if you require a rate of return of 15.6 percent?

A loan in the amount of $212,000 is to be repaid in equal annual payments over 15 years.The interest rate is 7 percent,compounded annually.What is the amount of interest that is included in the loan payment for Year 3?

The future value of an annuity due is computed as

Later on today,you will receive an annual dividend of $2.50 a share on ABC stock.The dividend is expected to increase by 2 percent annually thereafter.Which formula should be used to compute the value of the stock today if the discount rate is 14 percent?

You have $187,620 saved today and plan to withdraw $9,000 a year.How long can you make these withdrawals if you earn an annual percentage rate of 4.8 percent?

Theo just won a prize that will pay him $10,000 a year for 10 years,starting at the end of Year 10.What is the current value of this prize if the discount rate is 7 percent,compounded annually?

What is the effective annual rate if the APR is 5.25 percent,compounded semiannually?

Which term applies to a set of cash flows that are finite in number and increase in amount at a steady rate?

Which type(s)of loan repays the interest as an annuity and the principal as a lump sum?

Rodget's is saving $2,500 a month,starting today,and continuing for 4 years.The firm expects to earn 5.6 percent,compounded monthly.If the firm had wanted to deposit an equivalent lump sum today,how much would it have had to deposit?

A proposed 3-year project has expected annual cash inflows of $5,600,$7,900,and $11,200,for Years 1 to 3,respectively.What is the net present value of this project at a discount rate of 16 percent if the initial cost is $7,800?