NPV=Cost+PV
FV=C0(1+r)T
EAR=
FV=C0erT
BradleySnapphasdeposited$7,000inaguaranteedinvestmentaccountwithapromisedrateof6%
compoundedannually.Heplanstoleaveittherefor4fullyearswhenhewillmakeadownpayment
onacaraftergraduation.Howmuchofadownpaymentwillhebeabletomake?
Findthepresentvalueof$5,325tobereceivedinoneperiodiftherateis6.5%.
Yourparentsaregivingyou$100amonthforfouryearswhileyouareincollege.Ata6%discountrate,
whatarethesepaymentsworthtoyouwhenyoufirststartcollege?
TheAjaxCo.justdecidedtosave$1,500amonthforthenextfiveyearsasasafetynetforrecessionary
periods.Themoneywillbesetasideinaseparatesavingsaccountwhichpays3.25%interestcompounded
monthly.Itdepositsthefirst$1,500today.Ifthecompanyhadwantedtodepositanequivalentlumpsum
today,howmuchwouldithavehadtodeposit?
Whatisthefuturevalueof$2,400ayearforthreeyearsatan8%rateof
interest?
Toniadds$3,000tohersavingsonthefirstdayofeachyear.Timadds$3,000to
hissavingsonthelastdayofeachyear.Theybothearna9%rateofreturn.What
isthedifferenceintheirsavingsaccountbalancesattheendofthirtyyears?
Youestimatethatyouwillhave$24,500instudentloansbythetimeyou
graduate.Theinterestrateis6.5%.Ifyouwanttohavethisdebtpaidinfull
withinfiveyears,howmuchmustyoupayeachmonth?
Yourcardealeriswillingtoleaseyouanewcarfor$299amonthfor60
months.Paymentsaredueonthefirstdayofeachmonthstartingwiththeday
yousigntheleasecontract.Ifyourcostofmoneyis4.9%,whatisthecurrent
valueofthelease?
TodayisJanuary1.Startingtoday,Samisgoingtocontribute$140onthe
firstofeachmonthtohisretirementaccount.Hisemployercontributesan
additional50%oftheamountcontributedbySam.IfbothSamandhisemployer
continuetodothisandSamcanearnamonthlyrateofof1percent,how
muchwillhehaveinhisretirementaccount35yearsfromnow?
.
WinstonEnterpriseswouldliketobuysomeadditionallandandbuilda
newfactory.Theanticipatedtotalcostis$136million.Theownerofthefirmis
quiteconservativeandwillonlydothiswhenthecompanyhassufficientfunds
topaycashfortheentireexpansionproject.Managementhasdecidedtosave
$450,000amonthforthispurpose.Thefirmearns6%compoundedmonthlyon
thefundsitsaves.Howlongdoesthecompanyhavetowaitbeforeexpandingits
operations?
Yourinsuranceagentistryingtosellyouanannuitythatcosts$100,000today.
Bybuyingthisannuity,youragentpromisesthatyouwillreceivepaymentsof
$384.40amonthforthenext40years.Whatistherateofreturnonthis
investment?
Youhavesomepropertyforsaleandhavereceivedtwooffers.Thefirstofferis
for$189,000todayincash.Thesecondofferisthepaymentof$100,000today
andanadditional$100,000twoyearsfromtoday.Iftheapplicablediscountrate
is8.75%,whichoffershouldyouacceptandwhy?
Youjustpaid$350,000forapolicythatwillpayyouandyourheirs$12,000a
yearforever.Whatrateofreturnareyouearningonthispolicy?
Youarepayinganeffectiveannualrateof13.8%onyourcreditcard.Theinterest
iscompoundedmonthly.Whatistheannualpercentagerateonyouraccount?
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Whatistheeffectiveannualrateifabankchargesyou7.64%compounded
quarterly?
TheSmartBankwantstoappearcompetitivebasedonquotedloanratesand
thusmustoffera7.9annualpercentagerate.Whatisthemaximumratethe
bankcanactuallyearnbasedonthequotedrate?
Youwanttohave$10,000savedtenyearsfromnow.Howmuchlessdoyouhave
todeposittodaytoreachthisgoalifyoucanearn6%ratherthan5%onyour
savings?
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