1. THE INVESTMENT DETECTIVE This case presents the cash flows of eight unidentified investments‚ all of equal initial investment size. The student’s task is to rank the projects. The first objective of the case is to examine critically the principal capital-budgeting criteria. A second objective is to consider the problem that arises when net present value (NPV) and internal rate of return (IRR) disagree as to the ranking of two mutually exclusive projects. Finally‚ the case is a vehicle for introducing
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(approximately) d. PV = C/(r-g) = 10‚000/(.10-.05) = $200‚000. 9. a. PV = 10‚000/(1.055) = $7‚835.26 (assuming the cost of the car does not appreciate over those five years). b. You need to set aside (12‚000 × 6-year annuity factor) = 12‚000 × 4.623 = $55‚476. c. At the end of 6 years you would have 1.086 × (60‚476 - 55‚476) = $7‚934. 10. a. FV = 1‚000e.12x5 = 1‚000e.6 = $1‚822.12. b. PV = 5e-.12 x 8 = 5e-.96 = $1.914 million c. PV = C (1/r –
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5= $5 (approximately) d. PV = C/(r-g) = 10‚000/(.10-.05) = $200‚000. 9. a. PV = 10‚000/(1.055) = $7‚835.26 (assuming the cost of the car does not appreciate over those five years). b. You need to set aside (12‚000 × 6-year annuity factor) = 12‚000 × 4.623 = $55‚476. c. At the end of 6 years you would have 1.086 × (60‚476 - 55‚476) = $7‚934. 10. a. FV = 1‚000e.12x5 = 1‚000e.6 = $1‚822.12. b. PV = 5e-.12 x 8 = 5e-.96 = $1.914 million c. PV = C (1/r – 1/rert)
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of 10% is CORRECT? 4. Which of the following statements is CORRECT‚ assuming positive interest rates and holding other things constant? 5. You are considering two equally risky annuities‚ each of which pays $25‚000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity‚ while Investment DUE is an annuity due. Which of the following statements is CORRECT? 6. Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding? 7. Which
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value of an annuity‚ a bank will solve the formula to determine the monthly payment amount‚ the borrower’s monthly mortgage payment. Credit card financial service companies are commonly known to issue private student loans. Therefore‚ credit card companies would use the time value of money to determine loan payment schedules and the number that students most fear‚ the ending balance‚ the future value of the loan. Credit card companies would use the formula for present value of an annuity to determine
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INTRODUCTION Capital Mortgage Insurance Corporation (CMI) sells insurance to lenders protecting against mortgage default losses. They are a wholly owned subsidiary of Northwest Equipment Corporation. Following their acquisition in 1978‚ CMI’s goal has been to rebuild their business and diversify their services. Mortgage insurance is used to protect mortgage lenders (ie originators and/or underwriters) by transferring mortgage risk‚ and notably tail risk‚ from lenders to insurers. Insurers by their
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year lasting forever. PV = C/r r = C/PV Growing Perpetuity – a perpetuity with a constant growth rate (g) ** r must be greater than g ** Annuity – a stream of cash flows with a definite end Ordinary annuity – payments at the end of the year Annuity due – payments at the beginning of the year PV of annuity due = PV of an ordinary annuity * (1+ r) Simple interest – interest earned only on principal (same amt every period) Compound interest – earn interest on principal and interest
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Davis‚ Michaels and Company Case Report Executive Summary The executives of Davis‚ Michaels‚ and Company need help running their financial planning services. They must decide whether their assistant Janet can practice the fundamental concepts of finance efficiently enough or higher a temporary employee to help them conquer the overwhelming demand of their customers. Janet was given a variety of different DCF analysis questions to determine her skills. The main goal of every problem was to find
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years? FV = $16‚105.10 (4-2) What is the present value of a security that will pay $5‚000 in 20 years if securities of equal risk pay 7% annually? FV = $1‚292.10 (4-6) What is the future value of a 7%‚ 5-year ordinary annuity that pays $300 each year? If this were an annuity due‚ what would its future value be? FV = $1‚725.22 FVA = $1‚845.99 (4-13) Find the
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MATH 1115 - Assignment 2‚ Due Wednesday September 25th A general note on assignment submission: Write your name and B00 number at the top of every page of your assignment. Working with other students on assignments is allowed and encouraged. However‚ copying is not allowed. Each student must write out his or her own assignment. Show all of your work. If you are having trouble getting started on any of the problems‚ come see me during my office hours or by appointment. 1. Given the choice between
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