Finanace problems
Dr. Kimsa
unit_iii.docxQuestion1:
Much to your surprise, you were selected to appear on the TV show, "The Price is Right." As a result of your prowess in identifying how many rolls of toilet paper an average American family keeps on hand, you win the opportunity to choose one of the following: $2,000 today, $10,000 in 10 years, or $31,000 in 29 years. Assuming you can earn 16% on your money, which should you choose? If you are offered $10,000 in ten years and can earn 16% on your money, what is the present value of $10,000?
Question 2:
After placing $13,000 in a savings account paying annual compound interest of 4%, Leona will accumulate what amount if she leaves the money in the bank for 3 years?
PV × (1 + r)n = FV
13000× (1+0.04)3 = $14,623.23
Question 3:
To pay for your education you have taken out $28,000 in student loans. If you make monthly payments over 13 years at 6% compounded monthly, how much are your monthly student loan payments?
28,000× (1+0.06)13 = $59,721.99
Question 4:
What is the present value of a $650 perpetuity discounted back to the present at 12%? What is the present value of the perpetuity?
(88%× 650) ÷ 100% = $572
Question 5:
You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:
What is the present value of each if these three investments if the appropriate discount rate is 13%?
Pv= FV× [1÷ (1+i) n]
A = $4000 × [1÷ (1+0.13)5]
PRESENT VALUE FOR INVESTMENT A = 2171
B = $3000 × [1÷ (1+0.13)5]
= $1628
C = $15000 × [1÷ (1+0.13)5]
= $8141
