FIN 3600 MOD 2 Homework
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IN3600MOD2Template.xlsxSummary
| Module Two Homework Assignment |
| Chapter 3 Homework: P3-4a-b (pg. 103), P3-12a-c (pg. 104), and P3-17a (pg. 105) |
| 10 available points → prorated to assignment grade 30 points |
| Problems can be solved algebraically, using Excel formulas, and/or using TVM financial calculator inputs. No credit will be given if work is not shown. |
| Note the number of decimal places required for many problems. Rounding too early can have a material effect on the answers. |
| Label your work with the appropriate $ or % as indicated. |
| Provide your work below the line for each problem tab. Highlight or bold your answers. |
P3-4
| P3-4 | 6 points | No credit will be given if work is not shown. Highlight or bold your answers. | |||||||||||
| You have a trust fund that will pay you $1 million exactly 10 years from today. You want cash now, so you are considering an opportunity to sell the right | |||||||||||||
| to the trust fund to an investor. | |||||||||||||
| a. What is the least you will sell your claim for if you could earn the following rates of return on similar-risk investments during the 10-year period? | |||||||||||||
| 1. 6% | |||||||||||||
| 2. 9% | |||||||||||||
| 3. 12% | |||||||||||||
| (Show your work. Label $. No decimal places required.) | |||||||||||||
| b. Rework part (a) under the assumption that the $1 million payment will be received in 15 rather than 10 years. (Show your work. Label $. No | |||||||||||||
| decimal places required.) | |||||||||||||
P3-12
| P3-12 | 3 points | No credit will be given if work is not shown. Highlight or bold your answers. | |||||||||||
| Gina Coulson has just contracted to sell a small parcel of land that she inherited a few years ago. The buyer is willing to pay $24,000 now. Alternatively, | |||||||||||||
| the buyer will make the series of payments shown in the following table, with each payment made at the beginning of the year. Because Gina doesn’t | |||||||||||||
| really need the money today, she plans to let it accumulate in an account that earns 7% annual interest. | |||||||||||||
| a. What is the future value of the lump sum at the end of year 5? (Show your work. Label $. No decimal places required.) | |||||||||||||
| b. What is the future value of the mixed stream at the end of year 5? (Show your work. Label $. Two decimal places required.) | |||||||||||||
| c. Based on your findings in parts (a) and (b), which alternative should Gina take? | |||||||||||||
P3-17
| P3-17 | 1 point | No credit will be given if work is not shown. Highlight or bold your answers. | |||||||||||
| As part of your personal budgeting process, you have determined that at the end of each of the next five years you will incur significant maintenance | |||||||||||||
| expenses on your home. You'd like to cover these expenses by depositing a lump sum in an account today that earns 8%. You will gradually draw down | |||||||||||||
| this account each year as maintenance bills come due. | |||||||||||||
| a. How much money must you deposit today to cover all of the expenses? (Show your work. Label $. No decimal places required.) | |||||||||||||
