Exam 4: Discounted Cash Flow Valuation

Marlene and Darlene are each the recipient of an annuity that pays $1,000 at the end of each year for twelve years.They both received their first payment on the same day.Explain how Marlene and Darlene could have different NPVs for their annuities.

A trust has been established to fund scholarships in perpetuity.The next annual distribution will be $1,200 and future payments will increase by 3 percent per year.What is the value of this trust at a discount rate of 7.4 percent?

Benson's established a trust fund that provides $125,000 in college scholarships each year.The trust fund earns 6.15 percent and distributes only its annual income.How much money did Benson's contribute to establish this fund?

Theo is depositing $1,300 today in an account with an expected rate of return of 8.1 percent.If he deposits an additional $3,200 two years from today,and $4,000 three years from today,what will his account balance be ten years from today?

A car dealer is willing to lease you a car for $319 a month for 60 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 4.9 percent,compounded monthly,what is the current value of the lease?

What is the effective annual rate if your credit card charges you 10.64 percent compounded daily? (Assume a 365-day year.)

You borrow $199,000 to buy a house.The mortgage rate is 5.5 percent,compounded monthly.The loan period is 30 years,and payments are made monthly.If you pay for the house according to the loan agreement,how much total interest will you pay?

You want to have $20,000 saved in five years.If you can earn 4.5 percent on your savings,what amount must you save each year if the amount you save each year is the same?

You plan to save $2,400 a year and earn an average rate of interest of 5.6 percent.How much more will your savings be worth at the end of 40 years if you save at the beginning of each year rather than at the end of each year?

Nu-Tools plans to set aside an equal amount of money each year,starting today,so that it will have $25,000 saved at the end of three years.If the firm can earn 4.7 percent,how much does it have to save annually?

Assume you borrow $12,000 for 5 years with equal annual repayments.If the interest rate on the actual loan turns out to be higher than you anticipated,then the:

The annual percentage rate:

You have $2,500 to deposit into a savings account.The five banks in your area offer the following rates.In which bank should you deposit your savings?

The highest effective annual rate that can be derived from an annual percentage rate of 9 percent is computed as:

Several years ago,Sara invested $4,208.Today,that investment is worth $28,406 and has earned an average annual rate of return of 7.38 percent.How long ago did Sara make her investment?

Angela borrowed $5,000 for five years at an APR of 6.2 percent.The loan calls for equal,annual principal payments.Interest will also be paid annually.What will be her loan payment in Year 2?

Beatrice invests $1,000 in an account that pays 5 percent simple interest.How much more could she have earned over a period of 10 years if the interest had compounded annually?

For a proposed purchase to be acceptable,the PV of the future cash flows must:

You would like to have $50,000 saved at the end of Year 5.At the end of Year 2,you can deposit $7,500 for this purpose.If you earn 4.5 percent,how much must you deposit today to reach your goal assuming no other deposits are made?

What is the difference between an ordinary annuity and an annuity due? What value can be used to quickly convert both the present value and the future value of an ordinary annuity into annuity due values?