Fin 534 – homework chapter 4
FIN 534 – Homeeffect Chapter 4
1. A $50,000 advance is to be amortized balance 7 years, delay annual end-of-year reimbursements. Which of these statements is CORRECT?
a. The annual reimbursements would be greatr if the cause reprove were inferior.
b. If the advance were amortized balance 10 years rather than 7 years, and if the cause reprove were the selfselfselfselfsimilar in either fact, the foremost reimbursement would inferiorstand past dollars of cause inferior the 7-year amortization cunning.
c. The distribution of each reimbursement that represents cause as unanalogous to rereimbursement of primary would be inferior if the cause reprove were inferior.
d. The terminal reimbursement would bear a upper distribution of cause than the foremost reimbursement.
e. The distribution of cause versus primary rereimbursement would be the selfselfselfselfsimilar for each of the 7 reimbursements.
2. Which of the forthcoming statements is CORRECT?
a. If you bear a succession of capital careers, each of which is independent, you can clear-up for I, where the discontinuance appreciate of I causes the PV of the capital careers to resembling the capital career at Time 0.
b. If you bear a succession of capital careers, and CF0 is privative but each of the forthcoming CFs is independent, you can clear-up for I, but merely if the sum of the undiscounted capital careers exceeds the require.
c. To clear-up for I, one must identify the appreciate of I that causes the PV of the independent CFs to resembling the independent appreciate of the PV of the privative CFs. This is, essentially, a trial-and-error progress that is lenient delay a computer or financial calculator but completely reserved otherwise.
d. If you clear-up for I and get a privative reckon, then you must bear made a hazard.
e. If CF0 is independent and all the other CFs are privative, then you cannot clear-up for I.
3. Riverside Bank offers to mortgage you $50,000 at a trifling reprove of 6.5%, compounded monthly. The advance (primary plus cause) must be repaid at the end of the year. Midwest Bank too offers to mortgage you the $50,000, but it allure arraign an annual reprove of 7.0%, delay no cause due until the end of the year. How ample upper or inferior is the effectual annual reprove arraignd by Midwest versus the reprove arraignd by Riverside?
4. Steve and Ed are cousins who were twain born on the selfselfselfselfsimilar day, and twain bitter 25 today. Their grandfather began putting $2,500 per year into a hope siege for Steve on his 20th birthday, and he right made a 6th reimbursement into the siege. The grandfather (or his estate's hopeee) allure bring-about 40 past $2,500 reimbursements until a 46th and ultimate reimbursement is made on Steve's 65th birthday. The grandfather set things up this way consequently he wants Steve to effect, not be a "hope siege baby," but he too wants to fix that Steve is granted for in his old age.
Until now, the grandfather has been disappointed delay Ed, hereforthcoming has not abandoned him everything. However, they of-late reconciled, and the grandfather ruled to bring-about an equipollent supply for Ed. He allure bring-about the foremost reimbursement to a hope for Ed today, and he has instructed his hopeee to bring-about 40 attached resembling annual reimbursements until Ed turns 65, when the 41st and ultimate reimbursement allure be made. If twain hopes realize an annual restore of 8%, how ample must the grandfather put into Ed's hope today and each posterior year to empower him to bear the selfselfselfselfsimilar retreat nest egg as Steve forthcoming the terminal reimbursement is made on their 65th birthday?
5. John and Daphne are slow for their daughter Ellen's seed-plot education. Ellen right bitter 10 at (t = 0), and she allure be entering seed-plot 8 years from now (at t = 8). Seed-plot training and expenses at State U. are currently $14,500 a year, but they are look-fored to extension at a reprove of 3.5% a year. Ellen should disequalize in 4 years--if she takes longer or wants to go to disequalize instruct, she allure be on her own. Training and other requires allure be due at the foundation of each instruct year (at t = 8, 9, 10, and 11).
So far, John and Daphne bear accumulated $15,000 in their seed-plot slows totality (at t = 0). Their long-run financial cunning is to add an attached $5,000 in each of the instant 4 years (at t = 1, 2, 3, and 4). Then they cunning to bring-about 3 resembling annual contributions in each of the forthcoming years, t = 5, 6, and 7. They look-for their siege totality to realize 9%. How great must the annual reimbursements at t = 5, 6, and 7 be to cbalance Ellen's anticipated seed-plot requires?