1. IF YOU TAKE OUT AN $7,100 CAR LOAN THAT CALLS FOR 36 MONTHLY PAYMENTS STARTING AFTER 1 MONTH AT AN…

1. If you take out an $7,100 car loan that calls for 36 monthly payments starting after 1 month at an APR of 9%, what is your monthly payment? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Monthly payment $

 

b. What is the effective annual interest rate on the loan? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Effective annual interest rate %

 

2. Professor’s Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $79,000 at age 65, the firm will pay the retiring professor $575 a month until death.

 

a. If the professor’s remaining life expectancy is 20 years, what is the monthly rate on this annuity? What is the effective annual rate? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

   
  Monthly rate on annuity %
  Effective annual rate %

 

b. If the monthly interest rate is 1%, what monthly annuity payment can the firm offer to the retiring professor? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Monthly annuity payment $

 

In mid-2010 a pound of apples cost $1.16, while oranges cost $1.00. Ten years earlier the price of apples was only $.87 a pound and that of oranges was $.65 a pound.

 

a. What was the annual compound rate of growth in the price of the two fruits? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

  Annual
  Compound rate growth for apples %
  Compound rate growth for oranges %

 

b. If the same rates of growth persist in the future, what will be the price of apples in 2030? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Price of apples in 2030 $

 

c. What about the price of oranges? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Price of oranges in 2030 $

4.

A factory costs $410,000. You forecast that it will produce cash inflows of $125,000 in year 1, $185,000 in year 2, and $310,000 in year 3. The discount rate is 11%.

 

a. Calculate the PV of cash inflows. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Present value $

 

b. Is the factory a good investment?
   
 
No
Yes

5.

Compute the present value of a $290 cash flow for the following combinations of discount rates and times: (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

      Present Value
  a. r = 10%, t = 9 years $
  b. r = 10%, t = 18 years  
  c. r = 5%, t = 9 years  
  d. r = 5%, t = 18 years  

 

6.

Investments in the stock market have increased at an average compound rate of about 5% since 1917. It is now 2012.

 

a. If you invested $1,000 in the stock market in 1917, how much would that investment be worth today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Investment $

 

b. If your investment in 1917 has grown to $1 million, how much did you invest in 1917? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Present value $

 

7.

A bond’s credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 7.9%. A-rated bonds sell at yields of 8.2%. Assume a 10-year bond with a coupon rate of 7.4% is downgraded by Moody’s from Aa to A rating.

 

a. Calculate the initial price. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Initial price $

 

b. Calculate the new price. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  New price $

 

8.

Sure Tea Co. has issued 4.2% annual coupon bonds that are now selling at a yield to maturity of 5.6% and current yield of 5.5353%. What is the remaining maturity of these bonds? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Remaining period years  
 

9. A 10-year Treasury bond is issued with face value of $1,000, paying interest of $48 per year. If market yields increase shortly after the T-bond is issued, what is the bond’s coupon rate? (Round your answer to 1 decimal place.)

 

  Coupon rate %

 

10.

A bond has 10 years until maturity, a coupon rate of 6.2%, and sells for $1,102.

 

a. What is the current yield on the bond? (Round your answer to 2 decimal places.)

 

  Current yield %

 

b. What is the yield to maturity? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Yield to maturity %

 

11.

General Matter’s outstanding bond issue has a coupon rate of 9.4%, and it sells at a yield to maturity of 7.80%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at face value? (Round your answer to 2 decimal places.)

 

  Coupon rate %

12.

Computer Corp. reinvests 70% of its earnings in the firm. The stock sells for $45, and the next dividend will be $2.70 per share. The discount rate is 10%. What is the rate of return on the company’s reinvested funds? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Rate of return %

13.

You expect a share of stock to pay dividends of $1.50, $2.35, and $2.80 in each of the next 3 years. You believe the stock will sell for $28 at the end of the third year.

 

a. What is the stock price if the discount rate for the stock is 10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Stock price $

 

b. What is the dividend yield? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Dividend yield %

 

 
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