1. The most important interest rate to use when comparing loans... 2. The interest rate that is...
Question:
1. The most important interest rate to use when comparing loans...
2. The interest rate that is quoted by a lender:
3. The interest rate charged per period multiplied by the number of periods per year:
Match each of the definitions in #4-6 with one of the following loans:
Amortized Loan
Pure Discount Loan
Balloon Loan
4. A loan where the regular payments are insufficient to retire the entire loan amount, which then must be repaid with one lump sum:
5. A loan where the borrower receives funds up front and repays it with a single lump sum in the future:
6. A loan where payments are equal in amount and include both interest and principal:
7. If you are earning a salary of $40,000 in 2016 and expect to receive 4% raises per annum on January 1, what do you anticipate your salary will be in 2025?
8. What is the future value of $5,000 invested for 15 years at 7.5% compounded annually?
9. You hope to buy your dream car 5 years from now. Today, that car costs $88,000 but you expect the price to increase by an average of 5% per year over the next five years. How much will your dream car cost by the time you are ready to buy it?
10. Your grandmother invested a lump sum for you 20 years ago earning 6% interest per year over that time. Today, she gave you the proceeds of that investment which is now worth $48,107. How much did she originally invest?
11. Asendia USA has an unfunded pension liability of $6 million that must be paid in 20 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. The relevant discount rate is 6.25%. What is the present value of this liability?
12. You would like to give your 3-year old daughter $60,000 towards her college education 15 years from now. How much money must you set aside today for this purpose if you can think you can earn 7.5% per year on your investments?
13. Fifteen years ago, you put away $5,000. Today, that investment is now worth $16,535. What is the average annual rate of return you earned on your investment?
14. You just won first place in a CUNY essay writing contest, and as your prize, you will receive $500 a month each month for the next 6 years. If you can earn 7% on your money, what is the total prize worth to you today?
15. Your spouse needs a car and you believe you can afford no more than $350 a month for a 5-year car loan. If the interest rate on this loan is 5% percent, what is the maximum you can afford to borrow to purchase this car?
16. Your employer contributes $100 a week to your retirement plan. Assume that you work for this employer for another 15 years and the applicable discount rate is 7.25%. Given these assumptions, what is this employee benefit worth to you today?
17. You anticipate saving $1,800 a year for each of the next 25 years and anticipate earning 7% interest per year. Assuming annual compounding, how much do you expect to have in your account after 25 years?
18. You are borrowing $19,500 to buy a car. The terms of the loan call for monthly payments for 5 years at 6% percent interest. What is the amount of each monthly payment?
19. You borrow $285,000 to buy a house. 30-year mortgage rates are 4.25% and payments are made monthly. How much will be your mortgage payment be?
20. Referring back to question #19, how much total interest will you paying over the life of the mortgage?
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates