Urgent 2

FIN310

Mastery Project

PART TWO: Time Value of Money Calculations

1. Suppose you invest $1,000 in this company for 15 years and except to earn 5.5% per year. What is the future value in 19 years?

2. You want to begin saving for a child’s college education, and you estimate that he/she will need $130,000 in 15 years. If you feel confident that you can earn 8% per year, how much do you need to invest today?

3. You are looking at an investment that will pay $3,500 in 4 years if you invest $1,075 today. What is the implied rate of interest?

4. Suppose you are offered an investment that will allow you to double your money in 3 years. You have $8,000 to invest. What is the implied rate of interest?

5. Suppose you want to buy a new house. You currently have $20,000, and you figure you need to have a 10% down payment plus an additional 5% in closing costs. If the type of house you want costs about $150,000 and you can earn 8.5% per year, how long will it be before you have enough money for the down payment and closing costs?

6. Suppose you invest $500 in a mutual fund today and $400 in one year. If the fund pays 7% annually, how much will you have in two years?

7. Suppose you win the Publishers Clearinghouse $20 million sweepstakes. The money is paid in equal annual installments of $571,428.57 over 35 years. If the appropriate discount rate is 6%, how much is the sweepstakes actually worth today?

8. Suppose you want to borrow $35,000 for a new car. You can borrow at 8% per year, compounded monthly. If you take a 7-year loan, what is your monthly payment?

9. Suppose you borrow $2,500 at 6%, and you are going to make annual payments of $785. How long before you pay off the loan?

10. Suppose you begin saving for your retirement by depositing $2,000 per year in an IRA. If the interest rate is 7.5%, how much will you have in 40 years?

11. Calculate the following:

a. What is the APR if the monthly rate is 0.8%?

b. What is the APR if the semiannual rate is 0.6%?

c. What is the monthly rate if the APR is 17% with monthly compounding?

12. Suppose the following:

a. Suppose you can earn 1% per month on $1 invested today. How much are you effectively earning?

b. Suppose if you put it in another account, you earn 3% per quarter. What is the APR? Effective Rate?

13. Consider a bond with a coupon rate of 9% and coupons paid annually. The par value is $1,000 and the bond has 5 years to maturity. The yield to maturity is 11%. What is the value of the bond?

14. Assuming dividends grow at a constant rate, use the Dividend Growth Model to compute how much you think your company stock should be selling for. Explain where you got the variables for your equation.

15. Use the CAPM to find your required rate of return.