Instructions: Determine the answer for each of the following independent questio
ID: 2448935 • Letter: I
Question
Instructions: Determine the answer for each of the following independent questions. You will need to use your TI calculator for the calculations. You do not need to show your work. Answers can be rounded to the nearest dollar, or nearest 1/10th of a percent.
1. Your rich uncle has just given you $45,000. You have found a long-term investment that earns 6.25%, compounded annually. Assuming you put all of your uncle’s money into this investment, what will the total value of the investment be at the end of 25 years?
Total value after 25 years:___________________
2. Your best friend is anxious to purchase a home. He is expecting to borrow $230,000 at an annual rate of 4.5%, compounded monthly. The loan will be paid off monthly, over 30 years. What is the amount of the monthly payment? (hint: the total number of payments is 30 x 12 = 360, and you need to calculate a monthly interest rate)
Monthly payment:___________________
3. You are considering purchasing land for investment. The current landowner is willing sell you the land in exchange for a $70,000 note payable over 12 years. The landowner would require a payment of $9,289 at the end of each year for 12 years. Calculate the annual interest rate on this loan. (hint: this is an internal rate of return problem)
Interest rate:___________________
4. You are considering purchasing 100 shares of stock in Big Money Company. You expect the stock to pay annual dividends of $970 at the end of each year, and to be worth $85,000 at the end of ten years, when you plan to sell the stock. The investment costs $43,000 and you need an annual return of 7.3%. What is the net present value of this investment? Note: This is a standard net present value problem.
Cash Flow Worksheet
Present Value
Net Present Value
Based on your calculations, will the total return on the investment be at least 7.3%?
Circle one: Yes No
Exercise 13-14 (page 612)
Net present value of Project X: ____________________
Net present value of Project Y: ____________________
Which alternative would you recommend the company accept?
Circle one: Project X Project Y
Problem 13-22 (page 615)
Cash Flow Worksheet
Present Value
Net Present Value
Cash Flow Worksheet
Present Value
Net Present Value
Explanation / Answer
hence the future value after 25 years =204850