Instead of posting each practice problem separately, trying this route. Finance practice problems, Focuses on FV, PV, NP, etc.

• A prestigious investment bank designed a new security that pays a quarterly dividend of $4.40 in perpetuity. The first dividend occurs one quarter from today.

What is the price of the security if the APR is 6.1 percent, compounded quarterly? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Price

$

• What is the present value of an annuity of $7,000 per year, with the first cash flow received three years from today and the last one received 25 years from today? Use a discount rate of 6 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Present value

$

• Southern California Publishing Company is trying to decide whether to revise its popular textbook, Financial PsychoanalysisMade Simple. The company has estimated that the revision will cost $90,000. Cash flows from increased sales will be $20,800 the first year. These cash flows will increase by 4 percent per year. The book will go out of print five years from now. Assume that the initial cost is paid now and revenues are received at the end of each year.

If the company requires a return of 10 percent for such an investment, calculate the present value of the cash inflows of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Present value

$

• You?re prepared to make monthly payments of $260, beginning at the end of this month, into an account that pays 6.7 percent interest compounded monthly.

How many payments will you have made when your account balance reaches $17,000? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Number of payments

• An insurance company is offering a new policy to its customers. Typically the policy is bought by a parent or grandparent for a child at the child?s birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company:

First birthday	$	900
Second birthday	$	900
Third birthday	$	1,000
Fourth birthday	$	850
Fifth birthday	$	1,100
Sixth birthday	$	950

• After the child?s sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $400,000. If the relevant interest rate is 12 percent for the first six years and 7 percent for all subsequent years, what would the value of the deposits be when the policy matures? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Future value

$

• You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $690,000 per year. Thus, in one year you receive $1.69 million. In two years, you get $2.38 million, and so on.

If the appropriate interest rate is 7.9 percent, what is the present value of your winnings? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Present value

$

Mark Weinstein has been working on an advanced technology in laser eye surgery. His technology will be available in the near term. He anticipates his first annual cash flow from the technology to be $172,000 received two years from today. Subsequent annual cash flows will grow at 3.2 percent in perpetuity. What is the present value of the technology if the discount rate is 9 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) $ Present value A prestigious investment bank designed a new security that pays a quarterly dividend of $4.40 in perpetuity. The first dividend occurs one quarter from today. What is the price of the security if the APR is 6.1 percent, compounded quarterly? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price What is the present value of an annuity of $7,000 per year, with the first cash flow received three years from today and the last one received 25 years from today? Use a discount rate of 6 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value $ $ Southern California Publishing Company is trying to decide whether to revise its popular textbook, Financial Psychoanalysis Made Simple. The company has estimated that the revision will cost $90,000. Cash flows from increased sales will be $20,800 the first year. These cash flows will increase by 4 percent per year. The book will go out of print five years from now. Assume that the initial cost is paid now and revenues are received at the end of each year. If the company requires a return of 10 percent for such an investment, calculate the present value of the cash inflows of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value $ You're prepared to make monthly payments of $260, beginning at the end of this month, into an account that pays 6.7 percent interest compounded monthly. How many payments will you have made when your account balance reaches $17,000? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Number of payments An insurance company is offering a new policy to its customers. Typically the policy is bought by a parent or grandparent for a child at the child's birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company: First birthday Second birthday Third birthday Fourth birthday Fifth birthday Sixth birthday 900 900 1,000 850 1,100 950 After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $400,000. If the relevant interest rate is 12 percent for the first six years and 7 percent for all subsequent years, what would the value of the deposits be when the policy matures? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Future value $ $ $ $ $ $ $ You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $690,000 per year. Thus, in one year you receive $1.69 million. In two years, you get $2.38 million, and so on. If the appropriate interest rate is 7.9 percent, what is the present value of your winnings? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 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To do this, you will invest $740 per month in a stock account and $340 per month in a bond account. The return of the stock account is expected to be 9.4 percent, and the bond account will earn 5.4 percent. When you retire, you will combine your money into an account with an annual return of 6.4 percent. Assume the returns are expressed as APRs. How much can you withdraw each month from your account assuming a 30-year withdrawal period? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) $ Withdraw per month First calculate the FV of the investment made in 35 years Value of stock investment in Year 35 = FV(9.4%/12,35*12,-740,0,0) = $2,409,027.13 Value of bond investment in Year 35 = FV(5.4%/12,35*12,-540,0,0) = $422,458.57 Total value in Year 35 = $2,409,027.13 + $422,458.57 = $2,831,485.70 Now this total amount is invested in a account which fetches interest of 6.4%, So monthly withdrawal amount can be calculated using the formula below =PMT(6.4%/12,30*12,-2831485.7,0,0) = $17,711.11 Mark Weinstein has been working on an advanced technology in laser eye surgery. His technology will be available in the near term. He anticipates his first annual cash flow from the technology to be $172,000 received two years from today. Subsequent annual cash flows will grow at 3.2 percent in perpetuity. What is the present value of the technology if the discount rate is 9 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) $ Present value present value of the technology = 172000/(9%-3.2%) * 1/(1+9%) present value of the technology = $ 2,720,658.02 A prestigious investment bank designed a new security that pays a quarterly dividend of $4.40 in perpetuity. The first dividend occurs one quarter from today. What is the price of the security if the APR is 6.1 percent, compounded quarterly? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price $ $4.40*4= $17.6 Price=D/r 17.6/0.061 =$288.52 What is the present value of an annuity of $7,000 per year, with the first cash flow received three years from today and the last one received 25 years from today? Use a discount rate of 6 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value $ present value of an annuity = pv(6%,23,7000,0) *1/(1+6%)^2 present value of an annuity = $ 76,649.74 Southern California Publishing Company is trying to decide whether to revise its popular textbook, Financial Psychoanalysis Made Simple. The company has estimated that the revision will cost $90,000. Cash flows from increased sales will be $20,800 the first year. These cash flows will increase by 4 percent per year. The book will go out of print five years from now. Assume that the initial cost is paid now and revenues are received at the end of each year. If the company requires a return of 10 percent for such an investment, calculate the present value of the cash inflows of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value $ Present value= FV(1+k)^n Revision cost=$90,000 Year 1; 20,800(1.1)^-1=18909.10 Year 2; 21,632(1.1)^-2= 17877.69 Year 3; 22,497.28(1.1)^-3= 16902.54 Year 4; 23397.17(1.1)^-4= 15980.58 Year 5; 24,333.06(1.1)^-5=15108.92 Total=$84,778.83 You're prepared to make monthly payments of $260, beginning at the end of this month, into an account that pays 6.7 percent interest compounded monthly. How many payments will you have made when your account balance reaches $17,000? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Number of payments No of Payment = nper(6.7%/12,260,0,-17000) No of Payment = 55.89 An insurance company is offering a new policy to its customers. Typically the policy is bought by a parent or grandparent for a child at the child's birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company: First birthday Second birthday Third birthday Fourth birthday Fifth birthday Sixth birthday $ $ $ $ $ $ 900 900 1,000 850 1,100 950 After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $400,000. If the relevant interest rate is 12 percent for the first six years and 7 percent for all subsequent years, what would the value of the deposits be when the policy matures? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Future value $ Rate 12% 1 Compounding factor 900 1.762341683 2 900 1.57351936 3 1000 1.404928 1586.10 8 1416.16 7 1404.92 8 4 5 6 FV at end of 6 years N at 65 Interest Value at 65 years 850 1100 950 1.2544 1.12 1 7655.44293 9 59 7% $414,584.64 1066.24 1232 950 7655.44 3 You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $690,000 per year. Thus, in one year you receive $1.69 million. In two years, you get $2.38 million, and so on. If the appropriate interest rate is 7.9 percent, what is the present value of your winnings? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value $<_x.>