FIN 370 Chapter 6
Tanveer preferred stock has a dividend yield of 5.2 percent. The stock is currently priced at $43.40 per share. What is the amount of the annual dividend?
$2.26 C=$43.40(0.052)
What is the future value of $500 invested each year for 20 years at a rate of 10%?
$28,637 500*((1+10%)^20-1)/(10%)
What is the present value of $500 invested each year for 10 years at a rate of 5%?
$3,861
Thanh-Mi will receive $7,500 at the end of year 2, $9,000 at the end of year 3, and $12,500 at the end of year 4. What is the future value of these cash flows at the end of year 6 if the interest rate is 8 percent?
$36,121.08 FV:$7,500(1.08^4)+$9,000(1.08^3)+12,500(1.08^2)
Racing Motors wants to save $825,000 to buy some new equipment three years from now. The plan is to set aside an equal amount of money on the first day of each quarter starting today. How much does the company need to save each quarter to achieve its goal if it can earn 4.45 percent on its savings?
$63,932.91 FVA,DUE:$825,000=C{[(1+0.0445/4)^(3)(4) - 1]/(0.0445/4)}(1+0.0445/4)
What is the future value of $400 invested each year for 15 years at a rate of 6%?
$9,310 400*((1+6%)^15-1)/(6%)
You just won the magazine sweepstakes and opted to take unending payments. The first payment will be $50,000 and will be paid one year from today. Every year thereafter, the payments will increase by 2.5 percent annually. What is the present value of your prize at a discount rate of 7.9 percent?
$925,925.93 GPPV=$50,000/(0.079-0.025)
The variables in a present value of a lump sum problem include all of the following, except: -present value -time period -interest rate -payments
payments
How would an increase in the interest rate effect the present value of an annuity problem jail other variables remain the same?
decrease the present value
Which loan type requires calls for the borrower to pay interest each period and to repay the entire principal at some point in the future? -monthly amortized -interest-only -annual amortized -future principal -pure discount
interest-only
If a borrower receives money today and must repay the loan in a single lump sum on a future date, the loan is called a(n) ________ loan. -balloon -continuous -interest-only -amortized -pure discount
pure discount
The entire repayment of a(n) ________ loan is calculated by computing one single future value. -amortized -pure discount -bullet -balloon -interest-only
pure discount
The variables in a future value of an annuity problem include all of the following, except: -future value -interest rate -time period -payments -usage
usage
How would a decrease in the interest rate effect the present value of a lump sum, single amount problem (all other variables remain the same)? -decrease the present value -change the future value -increase the time needed to save -increase the present value
increase the present value
The variables in a present value of an annuity problem include all of the following except:
source of funds
The variable that you are solving for in a present value of an annuity problem is: -time period -interest rate -payments -the present time value
the present value
Which one of the following statements correctly defines a time value of money relationship? -time and future values are inversely related, all else held constant -time and present value are inversely related, all else held constant -an increase in time increases the future value given a zero rate of interest -an increase in a positive discount rate increases the present value -interest rates and time are positively related, all else held constant
time and present values are inversely related, all else held constant
Aidan can afford $240 a month for five years for a car loan. If the interest rate is 8.5 percent, what is the most he can afford to borrow?
$11,697.88 PVA:$240({1-[1/(1+0.085/12)^(5)(12)]}/(0.085/12))