Rico Tonto Corporation’s Finance Assingment Help With Solution
– TIME VALUE OF MONEY – HOMEWORK
1. If you invest $1,000 today in an account that pays 5% interest compounded annually, the balance in the account at the end of ten years, if you make no withdrawals, is approximately:
2. Which of the following has the highest future value if €1,000 is invested today:
a. 10 years with simple annual interest rate of 8%.
b. 5 years with simple annual interest rate of 13%.
c. 9 years with compounded annual interest rate of 7%.
d. 8 years with compounded annual interest rate of 7%
e. 5 years with compounded annual interest rate of 10%
3. What would the future value of $125 be after 8 years at 8.5% compound interest?
4. Last year Rico Tonto Corporation’s sales were $225 million. If sales are projected to be $375 million 5 years from now. What would be Rico Tonto’s compound annual growth rate in sales over the next 5 years?
5. Suppose the U.S. Treasury offers to sell you a zero coupon bond for $747.25. No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000. What interest rate would you earn if you bought this bond at the offer price?
6. You want to go to Europe 5 years from now, and you can save $3,100 per year, beginning one year from today. You plan to deposit the funds in a mutual fund which you expect to return 8.5% per year. Under these conditions, how much will you have just after you make the 5th deposit, 5 years from now?
7. Suppose you are buying your first house for $210,000, and are making a $20,000 down payment. You have arranged to finance the remaining amount with a 30-year, monthly payment, amortized mortgage at a 6.5% nominal interest rate. What will your equal monthly payments be?
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8. You have just won the lottery. It will pay you either 5 annual payments of $15,000 each (with the first payment to be received two years from today), or a single lump sum to be received today. If you can invest at a 6% annual rate of interest, what is the least you should accept as the lump sum payout amount?
9. You have financed the purchase of a used Mercedes with a $31,500 loan with a 5-year term, monthly payments, and an 8% stated annual rate. What is the amount of your monthly loan payment?
10. You have just invested $3,000 into an account that will earn a 9% annual interest rate. You want to have exactly $8,000 in the account at the end of 5 years. The account allows you to make one deposit at the end of the 3rd year. In order to have exactly $8,000 at the end of year 5, how much must you deposit at the end of the 3rd year?
11. You are planning to save for retirement over the next 30 years. To do this, you will invest $700 per month in a stock account and $300 in a bond account. The return on the stock account is expected to be 10%, and the bond account will pay 6%. When you retire, you will combine your money into an account with an 8% return. How much can you withdraw each month from your account assuming a 25-year withdrawal?
12. What is the value today of a15-year annuity that pays $750 per year? The annuity’s first payment occurs six years from today. The annual interest rate is 12% for years 1 through 5, and 15% thereafter.
13. You just won the lottery! Before you decide to quit school and move to Tahiti, you need to make a decision. You are offered equal payments each year for 31 years of $175,000 (wow), the first payment wired to you today, with 28% tax withheld. Or, you are offered a lump sum of $530,000 now with no tax withheld, and equal annual payments for 30 years of $125,000 thereafter with 28% tax withheld. Finally, you are offered a simple lump sum of $1.3 million, with 28% withholding taxes. Which do you select before your bon voyage, assuming a discount rate of 10%?
14. On September 1 2010, Susan B. Anthony bought a Harley for $25,000. She paid $1,000 down and financed the balance with a five-year loan at a stated interest rate of 8.4%, compounded monthly. She started making payments on October 1, 2010. At the end of October 2012, Susan got a new job and decided to pay off the loan. If the bank charges her a 1% prepayment penalty based on the unpaid balance, how much does she need to pay the bank?
15. You are saving for the college education of your two children. They are two years apart in age; one will begin college 15 years from now and the other will begin 17 years from now. You estimate your children’s college expenses to be $35,000 per year per child, payable at the beginning of each school year. The annual interest rate is 8.5%. How much money must you deposit in an account each year to fund your children’s education? Your deposits begin one year from today and your last deposit will be made when your oldest child enters college. Assume four years of college.
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