4-5 Multiyear Future Value How much would be in your savings account in eight years after depositing $150 today if the bank pays 8 percent per year? (LG4-3) FV8 = 150 × (1 + 0.07)8 150 × 1.71818618 Answer: 257.73 4-7 Compounding with Different Interest Rates A deposit of $350 earns the following interest rates: a. 8 percent in the first year. b. 6 percent in the second year.
TIME VALUE OF MONEY Assignment 1. What is the present value of: a. $8,000 in 10 years at 6% b. $16,000 in 5 years at 12% c. $25,000 in 15 years at 8% d. $1,000 in 40 periods at 20% 2. If you invest $12,000 today, how much will you have: a.
1. Your savings of $200,000 is earning 8% interest. A. If retirement is scheduled in 15 years and inflation is expected to average 5% annually during that period, will you have accumulated the $300,000 in purchasing power that you deem necessary? If not, by how much will you be short?
8% b. 8% 2. a. A $1,000 bond has a 7.5 percent coupon and matures after 10 years. If current interest rates are 10 percent, what should be the price of the bond? Price = $1,000 x 0.3855 + $1,000 x 7.5% x 6.1446 Price = $385.50 + $460.85 Price = $846.35 b.
The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds? 50*11.44+1000*.5138 = 1086 • 5-13 Yield to Maturity and Current Yield You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%.
AC324, Intermediate Accounting I D. L. Smith Practice Quiz 3 Chapters 6-7 November 2, 2013 1. Which table would show the largest factor for an interest rate of 8% for five periods? A) Future value of an ordinary annuity of 1 B) Present value of an ordinary annuity of 1 C) Future value of an annuity due of 1 D) Present value of an annuity due of 1 2. An amount is deposited for eight years at 8%. If compounding occurs quarterly, then the table value is found at A) 8% for eight periods.
If Krell is expected to pay a dividend of $0.88 this year, and its stock price is expected to grow to $23.54 at the end of the year, what is Krell’s dividend yield and equity cost of capital? Answer: Dividend Yield = Dividend / Share price = 0.88/22 = 4% Capital Gain Rate = (End of year stock price – Share price today) / Share price today = (23.54 – 22) / 22 = 7% Total expected return (Equity cost of capital) = 4% + 7% = 11% 9-5 No Growth Company NoGrowth Corporation currently pays a dividend of $2 per year, and it will continue to pay this dividend forever. What is the price per share if its equity cost of capital is 15% per year? Answer: Assume: dividends are paid at the end of the year Stock pays a total of $2.00 in dividends per year. Valuing this dividend as a perpetuity: P = $2.00 / 0.15 = $13.33 9-6 Value of Operations of Constant Growth Summit Systems will pay a dividend of $1.50 this year.
Should the company purchase the small technology firm? Use an interest rate of 12%. What is the “breakeven price” of the small technology firm? (Points : 10)\ 2. A bond has a par value of $100,000 and pays interest revenues of $5,000 per year.
Answer: Amount of discount = 70,000 * .03 = $2100. Net amount to borrow from bank = 70,000 – 2100 = $67,900. Interest cost of borrowing money at 6.5% = 67,900 * .065 * (60-10 days)/365 day in a year = $604.59. Amount saved by borrowing money to pay within time period to take advantage of discount = $2100-$604.59 = $1495.41 2) Determine the monthly payments for a $4000 loan at 5.5% add-on interest for one year. Answer: 4000 * .055 * 1 = 220.00 in interest.
a. $530 million b. $4,545 million c. $8,333 million d. $10,000 million e. $10,600 million [iv]. A company forecasts free cash flow of $50 million in five years. It expects the free cash flow to grow at a constant rate of 6 percent thereafter.