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2. Would you rather have a savings account that pays 5% compounded semiannually or one that pays 5 percent compounded daily? Explain your answer.
3. Stillwater Hospital is borrowing $1,000,000 for its medical office building. The annual interest rate is 5%. What will be the monthly payments on the loan if the length of the loan is four years and payments occur at the end of each year? Show your work.

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Casey Durgan
Casey DurganLv2
28 Feb 2019
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Related questions

Is there interest rate risk?

Use duration gap analysis to determine if there is interest rate risk in the following transaction: A bank obtains $25,000 in funds from a customer who makes a deposit with a 5-year maturity that pays 5% annual interest compounded daily. All interest and principal are paid at the end of 5 years. Simultaneously, the bank makes a $25,000 loan to an individual to buy a car. The loan is at a fixed rate of 12% annual interest but is fully amortized with 60 monthly payments, such that the borrower pays the same dollar amount (principal plus interest) each month.

Use a calculator to solve all quantitative problems, and be sure to show calculator format!!!

(n, I, pmt, pv, fv CFo,I,CF1, CF2….)

8) Three years ago a company had sales of $300,000. Now sales are $1,000,000. At what rate have

sales been growing?

9) Define each of the following:

a) Quoted rate (APR)

b) Periodic rate

c) Effective annual rate (EAR)

10) What are the following Effective Annual Rates (EAR) for 12%:

a) Compounded semiannually?

b) Compounded quarterly?

c) Compounded daily?

11) What would the value of $500 be after 4 years, assuming a return of 8% per year:

a) with semiannual compounding?

b) with quarterly compounding?

12)A. You plan to invest in a preferred stock issue that pays a $60 dividend at the end of each year. Based

on market conditions, you want to get a 5% return. What are you willing to pay for this security?

12)A You want to buy a car today!! The used car you are looking at costs $21,500. The car dealer will

charge you 5% interest on the three year car loan you need. You will be borrowing the whole $21,500. What will your car payment be, if you will make monthly payments?

13. Your company has invested $2500 in a vending machine today. You expect the machine to last 10 years and to produce the following after tax cash flows per year:

Year 1 $100

Year2 $250

Year 3 $250

Year 4 $300

Year 5 $300

Year 6 $300

Year 7 $300

Year 8 $300

Year 9 $350

Year 10 $350

If you have a required return on your investment of 7%, did you pay too much for the vending machine?

Show ALL work

It will help to use the timeline to outline the following problems.

1. You decide to begin saving for a new car to purchase in five years. If you put $1,000 at the end
of each of the next 5 years in a savings account paying 6% compounded annually, how much will you accumulate after 5 years?

2. James Smith has a 4-year ordinary annuity that pays $1,000 per year and has an interest rate of 6%. a. Calculate the future value of this ordinary annuity.

b. Assuming this was an annuity due, calculate the future value of this annuity.

3. You have contacted a number of car dealerships to determine the best interest rate on a new automobile loan. A Ford dealership has quoted you a 5-year, 10% loan in the amount of $35,000 that will require monthly payments.

a. What is the monthly loan payment?

b. What will be the loan‘s effective annual interest rate (EAR)?

4. Marcus has won the grand prize in a lottery and must choose between the following three options: a. Receive a lump sum payment of $9,000,000.

b. Receive annual end of the year payments of $1,000,000 for the next 12 years.
c. Receive annual end of the year payments of $1,500,000 for the next 8 years.
a. Which option should Marcus choose based on an annual investment rate of 8%?

5. How much money does Kristi need to have in her retirement savings account today if she wishes to withdraw $25,000 per year for 30 years? She expects to earn an average rate of 8%.

decide to begin saving towards the purchase of a new car in 5 years. If you put $1,000 at the end

6. What is the future value of $4,900 invested for 8 years at 7 percent compounded semiannually?

7. In 2005, soccer player David Beckham signed a contract reported to be worth $51 million. The contract called for $2 million immediately and $10 million in 2006. The remaining $39 million was to be paid as $9 million in 2007, $7 million in 2008, $6 million in 2009, $5 million in 2010, $4 million in 2011 and in 2012, $2 million in 2013, and $1 million in 2014 and 2015. Assuming all the payments, except the first $2 million are paid at the end of each year and the discount rate is 9%, what kind of deal did the soccer player snag?

8. What is the present value of the following set of cash flows at a 10% discount rate? Year 1 2 3 4
Cash Flow $600 –$600 $600 –$600

9. What is the future value of the set of cash flows (from the previous problem) 4 years from now? Assume an interest rate of 10%.

10. Starting today, George is going to contribute $300 on the first of each month to his retirement account. His employer will contribute an additional 50% of the amount George contributes. If both George and his employer continue to do this and he can earn a monthly rate of .68%, how much will George have in his retirement account 35 years from now?

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