IN 3030, Final Exam, 37,aid 10) Travis invested $9,250 irn in an account that pa
ID: 2799766 • Letter: I
Question
IN 3030, Final Exam, 37,aid 10) Travis invested $9,250 irn in an account that pays 6 percent sirmple interest. How much mor could he have earned over a 7 year period if the interest had compounded annuly? a) $741.41 b) $773 58 c) $802.16 d) $833.33 11) You would like to give your daughter $75,000 towards her college education 17 years from now How much money must you set aside today for this purpose if you can earn 8 percent on your investment? a) $18,388.19 b) $20,270.17 c)$28,417.67 d) $29,311.13 12) Oil Well Supply offers 7.5 percent coupon bonds with semiannual payments and a yield to maturity of 7.68 percent. The bonds mature in 6 years. What is the market price per bond if the par value is $1,000? a) $989.7 b) $991.47 c) $996.48 d) $1,002.60 13) Northern Gas recently paid a $2.80 annual dividend on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $26.91 a share. What is the market's expected rate of return for the stock based on the Gordon (or Constant) Growth Model? a) 13.88% b) 14.03% c) 14.21% d) 14.60% 14) You are considering the fllowing two mutually exclusive projects. The required rate of return is 14.6 percent for project A and 13.8 percent for project B. Which project should you accept and why? Year Project AProject B $50,000 $50,000 41,000 20,000 10,000 24,800 36,200 21,000 Page 3 of 8Explanation / Answer
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Amount set aside today FV×(1÷(1+r)^n) Here, 1 rate per annum 8.00% 2 Number of years 17 3 Number of compoundings per per annum 1 4 = 1÷3 rate per period ( r) 8.00% 5 = 2×3 Number of periods (n) 17 Future value (FV) $ 75,000 Amount set aside today $ 20,270.17 75000*(1/(1+8%)^17)