Your Company Is Planning To Borrow $3,000,000 For 5 Years
Your Company Is Planning To Borrow 3000000 On A 5 Year 10 Ann
Your company is planning to borrow $3,000,000 on a 5-year, 10%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal? Round your answer to two decimal places.
a) It is now January 1. You plan to make a total of 5 deposits of $100 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 12% but uses semiannual compounding. You plan to leave the money in the bank for 15 years. How much will be in your account after 15 years? Round your answer to the nearest cent.
b) You must make a payment of $1,533.06 in 10 years. To get the money for this payment, you will make 5 equal deposits, beginning today and for the following 4 quarters, in a bank that pays a nominal interest rate of 8% with quarterly compounding. How large must each of the 5 payments be? Round your answer to the nearest cent.
3. Find the interest rate (or rates of return) for each of the following situations. Round your answers to two decimal places. Put answer as a %.
- a. You borrow $750 and promise to pay back $825 at the end of 1 year.
- b. You lend $750 and receive a promise to be paid $825 at the end of 1 year.
- c. You borrow $80,000 and promise to pay back $122,318 at the end of 13 years.
- d. You borrow $10,000 and promise to make payments of $2,445.7 at the end of each year for 5 years.
4. Find the present value of the following ordinary annuities. Round your answers to the nearest cent.
- a. $600 per year for 10 years at 10%.
- b. $300 per year for 5 years at 5%.
- c. $600 per year for 5 years at 0%.
Now rework parts a, b, and c assuming that payments are made at the beginning of each year; that is, they are annuities due.
- d. $600 per year for 10 years at 10%.
- e. $300 per year for 5 years at 5%.
- f. $600 per year for 5 years at 0%.
5. If you deposit money today in an account that pays 5.6% annual interest, how long will it take to double your money? Round your answer to the nearest whole.
6. a) An investment will pay $200 at the end of each of the next 3 years, $400 at the end of Year 4, $600 at the end of Year 5, and $800 at the end of Year 6. If other investments of equal risk earn 8% annually, what is its present value? Round your answer to the nearest cent.
b) What is its future value? Round your answer to the nearest cent.
7. To complete your last year in business school and then go through law school, you will need $25,000 per year for 4 years, starting next year. Your rich uncle offers to put you through school, and he will deposit in a bank paying 4.2% interest a sum of money that is sufficient to provide the 4 payments of $25,000 each. His deposit will be made today.
a. How large must the deposit be? Round your answer to the nearest cent. $
b. How much will be in the account immediately after you make the first withdrawal? Round your answer to the nearest cent. $
How much will be in the account immediately after you make the last withdrawal? Round your answer to the nearest cent. $
8. Assume that you inherited some money. A friend of yours is working as an unpaid intern at a brokerage firm, and her boss is selling securities that call for 4 payments of $50 (1 payment at the end of each of the next 4 years) plus an extra payment of $1,000 at the end of Year 4. Your friend can get you these securities at a cost of $950 each.
Your money is now invested in a bank paying an 8% nominal (quoted) interest rate with quarterly compounding. You regard the securities as being just as safe and liquid as your bank deposit, so your required effective annual rate of return on the securities is the same as that on your bank deposit. Calculate the value of the securities to decide if they are a good investment. Round your answer to the nearest cent. $
9. a) What's the future value of a 3%, 4-year ordinary annuity that pays $350 each year? Round your answer to the nearest cent. $
b) If this were an annuity due, what would its future value be? Round your answer to the nearest cent. $
10. To the next whole year, how long will it take $200 to double if it earns the following rates? Round answers up to the next highest year.
- a. 7.4%
- b. 9.3%
- c. 17%
- d. 100%
11. Universal Bank pays 7% interest compounded annually on time deposits. Regional Bank pays 6%, compounded quarterly. a) Based on effective interest rates, in which bank would you prefer to deposit your money? I. Choose Regional Bank because its EAR (or EFF%) is higher. II. Choose Regional Bank because its nominal interest rate is higher. III. Indifferent, decision based on other factors. IV. Choose Universal Bank because its EAR (or EFF%) is higher. V. Choose Universal Bank because its nominal interest rate is higher.
b) Could your choice be influenced by the need to withdraw funds during the year? Consider that funds must be left in the deposit during the entire period to earn interest. I. If funds must stay until period end (1 year for Universal; 3 months for Regional) and you might withdraw early, Regional might be preferable. II. If funds must stay until period end (3 months for Universal; 1 year for Regional) and you might withdraw early, Regional might be preferable. III. If funds must stay until period end (1 year for Universal; 3 months for Regional) and no early withdrawal is planned, Regional might be preferable. IV. If funds must stay until period end (1 year for Universal; 3 months for Regional) and early withdrawal is likely, Universal might be preferable. V. If funds must stay until period end (3 months for Universal; 1 year for Regional) and early withdrawal is likely, Universal might be preferable.