Finance Week 2 Homework Assignment Ch 4 and 5 Problems

Week 2 Homework Assignment:
Chapter 4: 8, 17, 18
Chapter 5: 1, 4, 12

Chapter 4:
8. Calculating the Number of Periods. Calculating Rates of Return. In 2011, an 1880-O Morgan
silver dollar sold for $13,113. What was the rate of return on this investment?

17. Calculating Present Values. Suppose you are still committed to owning a $150,000 Ferrari
(see Question 9). If you believe your mutual fund can achieve a 10.25 percent annual rate of
return, and you want to buy the car in 10 years on the day you turn 30, how much must you
invest today?

18. Calculating Future Values. You have just made your first $5,000 contribution to your
individual retirement account. Assuming you earn a 10.1 percent rate of return and make no
additional contributions, what will your account be worth when you retire in 45 years? What if
you wait 10 years before contributing? (Does this suggest an investment strategy?)

Chapter 5:

1. Present Value and Multiple Cash Flows. Rooster Co. has identified an investment project with
the following cash flows. If the discount rate is 10 percent, what is the present value of these
cash flows? What is the present value at 18 percent? At 24 percent?

4. Calculating Annuity Present Values. An investment offers $6,700 per year for 15 years, with
the first payment occurring 1 year from now. If the required return is 8 percent, what is the value
of the investment? What would the value be if the payments occurred for 40 years? For 75
years? Forever?

12. Calculating EAR. Find the EAR in each of the following cases:
APR

#s of times compounded

EAR

10%

Quarterly

?

17

Monthly

?

13

Daily

09

Semiannually