Exam 6: Discounted Cash Flow Valuation

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

Downtown Bank is offering 2.2 percent compounded daily on its savings accounts.You deposit $8,000 today.How much will you have in your account 11 years from now?

Today,you borrowed $6,200 on your credit card to purchase some furniture.The interest rate is 14.9 percent,compounded monthly.How long will it take you to pay off this debt assuming that you do not charge anything else and make regular monthly payments of $120?

This morning,you borrowed $150,000 to buy a house.The mortgage rate is 7.35 percent.The loan is to be repaid in equal monthly payments over 20 years.The first payment is due one month from today.How much of the second payment applies to the principal balance? (Assume that each month is equal to 1/12 of a year.)

Which one of the following statements is correct given the following two sets of project cash flows?

You buy an annuity that will pay you $24,000 a year for 25 years.The payments are paid on the first day of each year.What is the value of this annuity today if the discount rate is 8.5 percent?

You are considering two projects with the following cash flows: Which of the following statements are true concerning these two projects? I.Both projects have the same future value at the end of year 4,given a positive rate of return. II.Both projects have the same future value given a zero rate of return. III.Project X has a higher present value than Project Y,given a positive discount rate. IV.Project Y has a higher present value than Project X,given a positive discount rate.

City Bank wants to appear competitive based on quoted loan rates and thus must offer a 7.75 percent annual percentage rate on its loans.What is the maximum rate the bank can actually earn based on the quoted rate?

On June 1,you borrowed $220,000 to buy a house.The mortgage rate is 8.25 percent.The loan is to be repaid in equal monthly payments over 15 years.The first payment is due on July 1.How much of the second payment applies to the principal balance? (Assume that each month is equal to 1/12 of a year.)

You are planning to save for retirement over the next 15 years.To do this,you will invest $1,100 a month in a stock account and $500 a month in a bond account.The return on the stock account is expected to be 7 percent,and the bond account will pay 4 percent.When you retire,you will combine your money into an account with a 5 percent return.How much can you withdraw each month during retirement assuming a 20-year withdrawal period?

A wealthy benefactor just donated some money to the local college.This gift was established to provide scholarships for worthy students.The first scholarships will be granted one year from now for a total of $35,000.Annually thereafter,the scholarship amount will be increased by 5.5 percent to help offset the effects of inflation.The scholarship fund will last indefinitely.What is the value of this gift today at a discount rate of 9 percent?

You are scheduled to receive annual payments of $5,100 for each of the next 7 years.The discount rate is 10 percent.What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?

Your car dealer is willing to lease you a new car for $245 a month for 48 months.Payments are due on the first day of each month starting with the day you sign the lease contract.If your cost of money is 6.5 percent,what is the current value of the lease?

What is the effective annual rate if a bank charges you 8.25 percent compounded quarterly?

You are considering a project which will provide annual cash inflows of $4,500,$5,700,and $8,000 at the end of each year for the next three years,respectively.What is the present value of these cash flows,given a 9 percent discount rate?

An ordinary annuity is best defined by which one of the following?

The entire repayment of which one of the following loans is computed simply by computing a single future value?

Stephanie is going to contribute $300 on the first of each month,starting today,to her retirement account.Her employer will provide a 50 percent match.In other words,her employer will contribute 50 percent of the amount Stephanie saves.If both Stephanie and her employer continue to do this and she can earn a monthly rate of 0.90 percent,how much will she have in her retirement account 35 years from now?

Which one of the following statements correctly states a relationship?

What is the annual percentage rate on a loan with a stated rate of 2.75 percent per quarter?