Question # 00003784
Posted By: spqr
Updated on: 11/20/2013 01:28 AM Due on: 11/30/2013
1 WashingtonAtlantic
invests $4 million to clear a tract of land and to set out some young pine
trees. The trees will mature in 10
years, at which time WashingtonAtlantic plans to sell the forest at an
expected price of $8 million.
WHAT
IS WASHINGTONATLANTICâ€™S EXPECTED RATE OF RETURN?

A
mortgage company offers to lend you $85,000; the loan calls for payments of
$8,273.59 per year for 30 years.
WHAT
INTEREST RATE IS THE MORTGAGE COMPANY CHARGING YOU?
To
complete your last year in business school and then go through law school,
you will need $10,000 per year for 4 years, starting next year (that is, you
will need to withdraw the first $10,000 one year from today). Your rich uncle offers to put you through
school, and he will deposit in a bank paying 7 percent interest, compounded
annually, a sum of money that is sufficient to provide the 4 payments of
$10,000 each. His deposit will be made
today.

a.

HOW
LARGE MUST THE DEPOSIT BE?

b.

HOW
MUCH WILL BE IN THE ACCOUNT IMMEDIATELY AFTER YOU MAKE THE FIRST WITHDRAWAL?



614
REACHING A FINANCIAL GOAL


You need to accumulate
$10,000. To do so, you plan to make
deposits of $1,250 per year, with the first payment being made a year from
today, in a bank, account that pays 12 percent interest, compounded
annually. Your last deposit will be
less than $1,250 if less is needed to round out to $10,000.
HOW MANY YEARS WILL IT
TAKE YOU TO REACH YOUR $10,000 GOAL, AND HOW LARGE WILL THE LAST DEPOSIT BE?

615
PRESENT VALUE OF A CASH FLOW STREAM


SEE TEXT PAGE 254 FOR
PROBLEM
Assume a discount rate
of 10%.
WHICH OF THE THREE
CONTRACTS OFFERS THE QUARTERBACK THE MOST VALUE?

619
LOAN
AMORTIZATION


Your company is planning to borrow
$1,000,000 on a 5 year, 15% annual payment, fully amortized term loan.
WHAT FRACTION OF THE PAYMENT MADE AT THE
END OF THE SECOND YEAR WILL REPRESENT REPAYMENT OF PRINCIPAL?
620
NOMINAL COMPOUNDING


a.

It
is now January 1, 2003. You plan to make 5 deposits of $100 each,
one every 6 months, with the first payment being made today.
IF
THE BANK PAYS A NOMINAL INTEREST RATE OF 12 PERCENT, BUT USES SEMIANNUAL
COMPOUNDING, HOW MUCH WILL BE IN YOUR ACCOUNT AFTER 10 YEARS?





b.

Ten
years from today you must make a payment of $1,432.02. To prepare for this payment, you will make
5 equal deposits, beginning today and for the next 4 quarters, in a bank that
pays a nominal interest rate of 12 percent, quarterly compounding.
HOW
LARGE MUST EACH OF THE 5 PAYMENTS BE?


Solution: finance data bank