1. (TCO A) Use future or present value techniques to solve the following problems. (Note: You can use tables or a financial calculator. If you use a calculator, please provide the inputs you used to solve the problems.) (5 points each = total 20 points) a. Starting with $20,000, how much will you have in 20 years if you can earn 5% on your money? b. If you inherited $100,000 today and invested all of it in a security that paid an 8% rate of return, how much would you have in 15 years? c. If the average new home costs $200,000 today, what will be the value in 10 years if inflation is 4% per year? d. If you can earn 9% per year, how much will you have to save each year if you want to retire in 40 years with $3 million? (Points : …show more content…
4. (TCO C) Alan and Barbara are in the process of purchasing their first home. However, they cannot decide whether a 15-year fixed-rate mortgage or a 30-year fixed-rate mortgage is best for them. They have decided to finance $200,000 and can get the 15-year mortgage at 4.5% and the 30-year mortgage at 5%. (35 points total) First, calculate the monthly payment of each loan. (15 points) Next, discuss the pros and cons of a 15-year mortgage versus a 30-year mortgage. (15 points) (Points : 35) Question 5. 5. (TCO D) John Savage is a 35-year-old accountant who earns $72,000 per year. His monthly take-home pay is $4,500. His wife Jessica works part-time at their church but has no employee benefits. John's firm has a group short-term disability plan, which will provide him with 65% of his gross monthly pay for 2 years only. What would you advise John regarding his potential need for additional disability insurance, including the type, amount of benefits, or other policy provisions? (30 points total) (Points : 30) Question 6. 6. (TCO E) The ABC Class A share mutual fund has a NAV
For Investment B: (40 – 5)/ 30= 1.16 standard units= close to 88% to get the 40 million in
a. Calculate the expected return over the 4-year period for each of the three alternatives.
What annual interest rate is needed to produce $200,000 after five years if only $100,000 is invested?
10. An investment of $1,000 today will grow to $1,100 in one year. What is the continuously compounded rate of return?
Suppose Sara and Sam are each making $40,000 the year they turn 25 and both start out saving 5% of their salaries. They receive annual raises of 6% for the next 6 years. Sara saves 75% of each raise;
The expected return of investing in the 25 year old bond priced at 852. By investing in this bond given at a rate of 7.5%, Marlene will realize a return on investments of about $137.42.
a. Discount factor based on a required return of 20% for 8 years = .232
Angie invested $100,000 she received from her grandmother today in a fund that is expected to earn 10% per annum. To what amount should the
Part I: A. The present value of my future bank account is: 15,000 / (1+.07) = $14,019. If the rate is only 4%, then the present value of my future bank account is 15,000 / (1.04) = $14,423.
have $2 million when he retires in 35 years, what percentage of salary should John invest in his 401K account?
How much money should be deposited in a bank paying a yearly interest rate of 6% compounded monthly so that after 3 years the accumulated amount will be $20,000?
1. If my account pays 5% and will be worth $4200 in one year, the present value of my account today is:
In the original scenario, the interest rate given is 8% and the total present value for future cash flows of years one through five equals $425.78MM. When the interest rate decreases to 5%, the total present value for the future cash flows of years one through five increases to $460.69MM. On the contrary, when the interest rate increases to 15%, the total present value for the future cash flows of years one through five decreases to $359.18MM. As a result, the conclusion can be made that there is an inverse relationship between interest rate and net present value. According to James Wilkinson (2013), “As a rule the higher the discount rate the lower the net present value with everything else being equal.” Hence, Wilkinson (2013) affirms that the investment which yields the highest net present value should always be chosen. Therefore, in this scenario and all other things being equal, Home Depot should choose the investment with the 5% interest rate, as it has the greatest net present value.