1. Calculate the Present Value (month 0) of the cash flows between years 1 and year 10 (months 1 and 120 respectively), if and according to the Buy or Rent case, the Wong family rents a house for 4,000 dollars a month and the rent increases monthly by 0.15%? Assume the Wong's annual opportunity cost is 6.5% and the rent begins to be paid in month 1 (monthly payment streams). Show your result by combining the formulas seen in the Annuity and Perpetuity class with constant growth.

 2. The company Daiwa Motors has announced a dividend per share for the next 3 years (from year 1 to year 3) of USD 5 each. After that, the dividend will grow at an annual rate of 5% in perpetuity. If the annual discount rate required by the investor is 10%, what is the price of the stock TODAY (year 0)?

Use the annuity (first three years) and perpetuity (from year 4) formulas seen in class (you can confirm them with the Excel formulas for the annuity)?

Question 3. You are going to buy a computer (list price USD 1,800) at the store "El Gallo más Gallo" and they offer you a loan with a nominal annual interest rate of 10.5% compounded quarterly. The loan period is 17 months?

Calculate the effective annual interest rate and indicate the amount you will pay for the loan (principal and interest). Assume that you receive the loan today (period 0) and that you will have to pay the principal and interest in full at the end of the loan period?

Answer rating: 100% (QA)

Question 1 Calculate the Present Value month 0 of the cash flows between years 1 and year 10 months 1 and 120 respectively if and according to the Buy or Rent case the Wong family rents a house for 40... View the full answer