post university fin 201 unit 3 case problem 3

Question # 00004348 Posted By: spqr Updated on: 12/02/2013 12:37 AM Due on: 12/28/2013
Subject Finance Topic Finance Tutorials:
Dot Image

Answer the following questions. Be sure to show all your work- not just the answer. Follow this format: cite the formula, then plug in numbers, then compute to show your final answer.

Q1 through 10 are worth 4 points each; Q11a, Q11b, Q12, and Q13 are worth 15 points each. Be sure to solve according to the method that is requested.

1. What is the Rule of 72 ?

2. Solve using the Rule of 72: rate = 8%, years = 18, pv = $7,000. Solve for fv.

3. Solve, using the Rule of 72 rate = 4%, years = 18, fv=$8,000. Solve for pv.

4. Solve, using the Rule of 72: rate =6%, pv=$7,000, fv= $56,000. Solve for years.

5. Solve, using the Rule of 72: pv=$10,000; fv=$160,000; years=10. Solve for rate.

Q6-Q9. Use appropriate tvm table in your textbook's appendix to solve Q6-Q9. For each question, cite the appropriate table that you are using, show the formula, and then plug-in your numbers to solve. Show all your work.

Q6 pv= $7,200 rate = 7% periods = 15 Solve for fv

Q7 fv=$15,000 rate = 15% periods = 10 Solve for pv

Q8 payment = $6,000 interest rate =8% number of periods = 10 Solve for pva

Q9 payment = $4,000 interest rate =10% number of periods = 20 Find fva

For Q10-Q13, you many use tvm tables, a financial calculator, or excel to solve. Be sure to show all the steps in your work: factors & formula if you use the tables; keystrokes if you use a financial calculator; or formulas if you use excel.

Q10. Stressed and penniless after months of day trading, Mr. Baruch decides to invest his savings into a conservative growth mutual fund. He plans to retire in 30 years and wants to make annual deposits into his IRA in order to accumulate a sum of $450,000 at the end of the 30 years. Mr. Baruch expects to earn 10% per year, on average, in his mutual fund. What should be the amount of Baruch's annual contributions ?

Q11. On the way to Stop&Shop, you buy a lottery ticket and win $100,000. The catch is that the money will be paid to to you in two installments: $50,000 today, and $50,000 at the end of 5 years from now.

Q11-a: Assuming an interest rate of 8%, what is the present value of your total lottery payments ?

Q11-b: Suppose that you invest the $50,000 winnings that you receive today and earn 8% annually for the next 5 years. What is the future value of your total lottery payments ?

12. Investor G. Loeb owns a 5-year, $1000 bond with a 5% coupon. If the yield to maturity on similar bonds is currently 10%, what is Mr. Loeb's bond worth today ?

13. A security analyst is forecasting dividends for Boston Electric over the next four years, as follows: $1 (Y1), $1.50 (Y2); $2.00 (Y3); $2.75 (Y4). In addition, the analyst expects that the stock could be sold for $62.25 four years from now. If the required return on the stock is 8%, what is the stock worth today?

Dot Image
Tutorials for this Question
  1. Tutorial # 00004144 Posted By: spqr Posted on: 12/02/2013 12:40 AM
    Puchased By: 3
    Tutorial Preview
    is requested.1. What is the Rule of 72 ?2. Solve using the ...
    smithweek3finance.doc (18 KB)
    Recent Feedback
    Rated By Feedback Comments Rated On
    tr...irl Rating Tutorials are written after research 08/19/2014

Great! We have found the solution of this question!

Whatsapp Lisa