For ACC_Fina_Guru

Chapter 05

1. Compute the future value in year 8 of a $3,800 deposit in year 1 and another $3,300 deposit at the end of year 3 using a 10 percent interest rate. 

(Do not round intermediate calculations and round your final answer to 2 decimal places.)

2. Assume that you contribute $280 per month to a retirement plan for 25 years. Then you are able to increase the contribution to $560 per month for another 25 years. Given a 8 percent interest rate, what is the value of your retirement plan after the 50 years? 

(Do not round intermediate calculations and round your final answer to 2 decimal places.)

3. Assume that you contribute $260 per month to a retirement plan for 20 years. Then you are able to increase the contribution to $460 per month for the next 30 years. Given an 6 percent interest rate. What is the value of your retirement plan after the 50 years? 

(Do not round intermediate calculations and round your final answer to 2 decimal places.)

4. You are looking to buy a car. You can afford $350 in monthly payments for four years. In addition to the loan, you can make a $2,000 down payment. If interest rates are 9.50 percent APR, what price of car can you afford? 

(Do not round intermediate calculations and round your final answer to 2 decimal places.)

5. You are looking to buy a car. You can afford $750 in monthly payments for five years. In addition to the loan, you can make a $850 down payment. If interest rates are 10.50 percent APR, what price of car can you afford? 

(Do not round intermediate calculations and round your final answer to 2 decimal places.)

6. What annual interest rate would you need to earn if you wanted a $1,000 per month contribution to grow to $77,500 in six years? 

(Do not round intermediate calculations and round your final answer to 2 decimal places.)

7. Joey realizes that he has charged too much on his credit card and has racked up $4,300 in debt. If he can pay $125 each month and the card charges 18 percent APR (compounded monthly), how long will it take him to pay off the debt? 

(Do not round intermediate calculations and round your final answer to 2 decimal places.)

8. Phoebe realizes that she has charged too much on her credit card and has racked up $6,200 in debt. If she can pay $250 each month and the card charges 17 percent APR (compounded monthly), how long will it take her to pay off the debt? 

(Do not round intermediate calculations and round your final answer to 2 decimal places.)

9. Given an 8 percent interest rate, compute the year 7 future value if deposits of $2,200 and $3,200 are made in years 1 and 3, respectively, and a withdrawal of $1,000 is made in year 4. 

(Do not round intermediate calculations and round your final answer to 2 decimal places.)

Chapter 07

1. A 3.750 percent TIPS has an original reference CPI of 184.6. If the current CPI is 209.9, what is the par value and current interest payment of the TIPS? (Do not round intermediate calculations and round your final answers to 2 decimal places.)

2. Consider the following three bond quotes: a Treasury note quoted at 97:24, a corporate bond quoted at 103.75, and a municipal bond quoted at 102.40. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?(Do not round intermediate calculations and round your final answers to 2 decimal places.)

3. Consider the following three bond quotes: a Treasury bond quoted at 104:19, a corporate bond quoted at 96.15, and a municipal bond quoted at 100.55. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?(Do not round intermediate calculations and round your final answers to 2 decimal places.)

4. Calculate the price of a 6.7 percent coupon bond with 15 years left to maturity and a market interest rate of 8.5 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Is this a discount or premium bond?

5. A 6.10 percent coupon bond with ten years left to maturity is priced to offer a 7.2 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in dollars? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

6. A 6.15 percent coupon bond with 18 years left to maturity is offered for sale at $1,085.25. What yield to maturity is the bond offering? (Assume interest payments are semiannual.) (Round your answer to 2 decimal places.)

7. A 6.80 percent coupon bond with 14 years left to maturity is priced to offer a 7.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.1 percent. What is the change in price the bond will experience in dollars? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

8. A 6.10 percent coupon bond with 14 years left to maturity is offered for sale at $956.72. What yield to maturity is the bond offering? (Assume interest payments are semiannual.) (Round your answer to 2 decimal places.)

9. A client in the 34 percent marginal tax bracket is comparing a municipal bond that offers a 6.40 percent yield to maturity and a similar-risk corporate bond that offers a 7.40 percent yield.

  

Determine the equivalent taxable yield. (Round your answer to 2 decimal places.) Which bond will give the client more profit after taxes?   Municipal bond Corporate bond 10. Consider a 2.95 percent TIPS with an issue CPI reference of 202.6. The bond is purchased at the beginning of the year (after the interest payment), when the CPI was 212.5. For the interest payment in the middle of the year, the CPI was 215.5. Now, at the end of the year, the CPI is 219.2 and the interest payment has been made.    What is the total return of the TIPS in dollars? (Do not round intermediate calculations and round your final answer to 2 decimal places.) What is the total return of the TIPS in percentage? (Do not round intermediate calculations and round your final answer to 2 decimal places.) 10. A 6.90 percent coupon bond with 23 years left to maturity is priced to offer a 5.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent. What would be the total return of the bond in dollars? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.) What would be the total return of the bond in percent? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.) 11. A 3.10 percent coupon municipal bond has 15 years left to maturity and has a price quote of 96.45. The bond can be called in four years. The call premium is one year of coupon payments. (Assume interest payments are semiannual and a par value of $5,000.) Compute the bond’s current yield. (Round your answer to 2 decimal places.) Compute the yield to maturity. (Round your answer to 2 decimal places.) Compute the taxable equivalent yield (for an investor in the 30 percent marginal tax bracket). (Round your answer to 2 decimal places.) Compute the yield to call. (Round your answer to 2 decimal places.)

Chapter 13                Compute the MIRR statistic for Project J if the appropriate cost of capital is 10 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)       Project J               Time: 0 1 2 3 4 5   Cash flow –$2,500 $800 $2,230 –$670 $750 –$250       MIRR  %      Should the project be accepted or rejected?   Accepted Rejected Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively.                    Time: 0 1 2 3 4 5   Cash flow –$227,000 $65,000 $83,200 $140,200 $121,200 $80,400     Use the discounted payback decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.)      Discounted payback  years      Should it be accepted or rejected?   Accepted Rejected Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively.                    Time: 0 1 2 3 4 5   Cash flow –$239,000 $66,200 $84,400 $141,400 $122,400 $81,600     Use the IRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.)   IRR  %   Should it be accepted or rejected? Rejected Accepted Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 13 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively.                    Time: 0 1 2 3 4 5   Cash flow –$300,000 $52,800 $71,000 $115,000 $109,000 $68,200    Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.)   MIRR  %   Should it be accepted or rejected? Rejected Accepted Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively.                    Time: 0 1 2 3 4 5   Cash flow –$350,000 $66,300 $84,500 $141,500 $122,500 $81,700    Use the NPV decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)   NPV $    Should it be accepted or rejected? Rejected Accepted Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively.                     Time: 0 1 2 3 4 5   Cash flow –$238,000 $66,100 $84,300 $141,300 $122,300 $81,500       Use the PI decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.)     PI   Should it be accepted or rejected?   Accepted Rejected