Anda di halaman 1dari 2

# Assignment 1_FMG

1) Bill Jones is considering two investment options for \$1,000 gift he received for graduation. Both investments have 8% annual interest rates. One offers quarterly compounding; the other compounds on a semiannual basis. Which investment should he choose? Why? Brenda Starr deposited \$18,000 in a money market certificate that provides interest of 10% compounded quarterly if the amount is maintained for 3 years. How much will Brenda Starr have at the end of 3 years? Charlie Brown will receive \$50,000 on December 31, 2009 (5 years from now) from a trust fund established by his father. Assuming the appropriate interest rate for discounting is 12% (compounded semiannually), what is the present value of this amount today? What are the primary characteristics of an annuity? Differentiate between an ordinary annuity and an annuity due. Linus, Inc. owes \$30,000 to Peanuts Company. How much would Linus have to pay each year if the debt is retired through four equal payments (made at the end of the year), given an interest rate on the debt of 12%? (Round to two decimal places.) Janet Jackson will invest \$30,000 today. She needs \$222,000 in 21 years. What annual interest rate must she earn? Bayou Inc. will deposit \$20,000 in a 12% fund at the end of each year for 8 years beginning December 31, 2005. What amount will be in the fund immediately after the last deposit? E6-4 (Simple and Compound Interest Computations) Alan Jackson invests \$20,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, Alan withdrew the accumulated amount of money. Instructions (a) Compute the amount Alan would withdraw assuming the investment earns simple interest. (b) Compute the amount Alan would withdraw assuming the investment earns interest compounded annually. (c) Compute the amount Alan would withdraw assuming the investment earns interest compounded semiannually. E6-5 (Computation of Future Values and Present Values) Using the appropriate interest table, answer each of the following questions. (Each case is independent of the others.) (a) What is the future value of \$7,000 at the end of 5 periods at 8% compounded interest? (b) What is the present value of \$7,000 due 8 periods hence, discounted at 11%? (c) What is the future value of 15 periodic payments of \$7,000 each made at the end of each period and compounded at 10%? (d) What is the present value of \$7,000 to be received at the end of each of 20 periods, discounted at 5% compound interest?

2)

3)

4) 5)

6) 7)

8)

9)

10) E6-6 (Computation of Future Values and Present Values) Using the appropriate interest table, answer the following questions. (Each case is independent of the others). (a) What is the future value of 20 periodic payments of \$4,000 each made at the beginning of each period and compounded at 8%? (b) What is the present value of \$2,500 to be received at the beginning of each of 30 periods, discounted at 10% compound interest? 11) E6-8 (Future Value and Present Value Problems) Presented below are three unrelated situations. (a) Kobe Bryant Company recently signed a lease for a new office building, for a lease period of 10 years. Under the lease agreement, a security deposit of \$12,000 is made, with the deposit to be returned at the expiration of the lease, with interest compounded at 10% per year. What amount will the company receive at the time the lease expires? (b) Serena Williams Corporation, having recently issued a \$20 million, 15-year bond issue, is committed to make annual sinking fund deposits of \$600,000. The deposits are made on the last day of each year and yield a return of 10%. Will the fund at the end of 15 years be sufficient to retire the bonds? If not, what will the deficiency be? (c) Under the terms of his salary agreement, president Rex Walters has an option of receiving either an immediate bonus of \$40,000, or a deferred bonus of \$70,000 payable in 10 years. Ignoring tax considerations, and assuming a relevant interest rate of 8%, which form of settlement should Walters accept? 12) E6-9 (Computation of Bond Prices) What would you pay for a \$50,000 debenture bond that matures in 15 years and pays \$5,000 a year in interest if you wanted to earn a yield of: 8%? (b) 10%? (c) 12%? 13) E6-10 (Computations for a Retirement Fund) Clarence Weatherspoon, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to withdraw \$20,000 per year on June 30, beginning in 2011 and continuing through 2014. To develop this fund, Clarence intends to make equal contributions on June 30 of each of the years 20072010. Instructions