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    FM A Assignment 19-40659-1

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    Pacific Hunter Johnny
    1. A father will need to invest $82,051 today at 10% annual interest to have $100,000 in 10 years for his son's college tuition. 2. A lump sum of $1,440,000 today is equivalent to receiving $120,000 annually for 12 years with a 12% annual return. 3. a) With quarterly compounding, the client will have $177,625 in their account after 1 year at a 7% annual interest rate. b) With monthly compounding, the client will have $177,750 in their account after 1 year at a 7% annual interest rate.

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    FM A Assignment 19-40659-1

    Uploaded by

    Pacific Hunter Johnny
    69 views11 pages
    1. A father will need to invest $82,051 today at 10% annual interest to have $100,000 in 10 years for his son's college tuition. 2. A lump sum of $1,440,000 today is equivalent to receiving $120,000 annually for 12 years with a 12% annual return. 3. a) With quarterly compounding, the client will have $177,625 in their account after 1 year at a 7% annual interest rate. b) With monthly compounding, the client will have $177,750 in their account after 1 year at a 7% annual interest rate.

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    FM_A_Assignment_19-40659-1

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    1. A father will need to invest $82,051 today at 10% annual interest to have $100,000 in 10 years for his son's college tuition. 2. A lump sum of $1,440,000 today is equivalent to receiving $120,000 annually for 12 years with a 12% annual return. 3. a) With quarterly compounding, the client will have $177,625 in their account after 1 year at a 7% annual interest rate. b) With monthly compounding, the client will have $177,750 in their account after 1 year at a 7% annual interest rate.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    69 views11 pages

    FM A Assignment 19-40659-1

    Uploaded by

    Pacific Hunter Johnny
    1. A father will need to invest $82,051 today at 10% annual interest to have $100,000 in 10 years for his son's college tuition. 2. A lump sum of $1,440,000 today is equivalent to receiving $120,000 annually for 12 years with a 12% annual return. 3. a) With quarterly compounding, the client will have $177,625 in their account after 1 year at a 7% annual interest rate. b) With monthly compounding, the client will have $177,750 in their account after 1 year at a 7% annual interest rate.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 11

    Financial Management

    Assignment (Mid): FM-01


    Due Date: August 08, 2020, by 4:00 PM sharp

    Please show calculations, where necessary.

    1. A father will make his son’s first $100,000 college tuition payment 10 years from now.
    How much will he need to invest today to meet his first tuition goal, if the investment is
    expected to earn 10% annually.

    2. A client can choose between receiving 12 annual $120,000 retirement payments, starting
    one year from today, or receiving a lump sum today. Knowing that he can invest at a rate
    of 12% annually, he has decided to take the lump sum. What lump sum today will be
    equivalent to the future annual payments?

    3. For liquidity purposes, a client keeps $175,000 in a bank account. The bank quotes a stated
    annual interest rate of 7% annually. The bank’s service representative explains that the
    stated rate is the rate one would earn if one were to cash out rather than invest the interest
    payments.
    a. With quarterly compounding, how much will your client have in his account at the
    end of one year, assuming no additions or withdrawals?

    b. With monthly compounding, how much will he have in his account at the end of
    one year, assuming no additions or withdrawals?

    4. Two years from now, a client will receive the first of three annual payments of $25,000
    from a small business project. If she can earn 9% annually on her investments and she plans
    to retire in five years, how much will the three business project payments be worth at the
    time of her retirement?
    5. A couple makes a down payment of $10,000 down on the purchase of a new home. The
    bank finances a mortgage of $400,000 at 6.5% over a term of 3 years. The loan requires
    quarterly payments. Determine approximate payment, in addition to total interest paid over
    the life of the loan (use amortization schedule).
    6. A man invests $100,000 between two separate funds. One fund pays 9% simple interest
    annually while the second fund pays 9.5% simple interest annually. If the man earns a total
    of $3,630 interest at the end of the first year, how much did he invest in each fund?

    7. Determine the answer to each of the following questions.


    a. Find the Future Value of $3500 invested today at 9% for 10 years.

    b. Find the Present Value of $7000 received 10 years from today if the discount rate
    is 11%.
    c. Find the Future Value of $4000 per year (at the end of each year) invested at 6%
    for 7 years.

    d. Find the Present Value of $5000 per year (at the end of each year) if the discount
    rate is 15% for 16 years.

    8. Find the interest rates implied by the contract: You borrow $2500 today and promise to
    repay the loan by making a single payment of $3114.00 in 5 years.

    9. If $3000 is invested today at a 12% nominal interest rate, how much will it be worth in 13
    years if interest is compounded
    a. Annually
    b. Quarterly

    c. Monthly

    d. Daily (365-days per year)

    10. How long will it take your money to triple given the following interest rates?
    a. 6%
    b. 11%
    c. 16%
    11. Find the present value of the following cash flow stream if the discount rate is 13%:

    a. Years 1-2, $5000 per year

    b. Years 3-4, $7000 per year


    c. Years 5-6, $9000 per year

    12. Find the value of the following cash flow stream at the end of year 10 if the rate of return
    is 8.75%:
    a. Years 1-3, $4000 per year

    b. Year 4, $8500
    c. Years 5-7, $9500 per year

    d. Years 8-10, $13,000 per year

    13. Find the effective annual rate of interest for a nominal rate of 10% compounded
    a. Annually

    b. Quarterly
    c. Monthly

    d. Daily (365 days per year)

    14. Your firm has a retirement plan that matches all contributions on a one-to-two basis. That
    is, if you contribute $3000 per year, the company will add $1500 to make it $4500. The
    firm guarantees a 9% return on your investment. Alternatively, you can “do-it-yourself”
    and you think you can earn 12% on your money by doing it this way. The first contribution
    will be made 1 year from today. At that time, and every year thereafter, you will put $3000
    into the retirement account. If you want to retire in 25 years, which way are you better off?
    15. You are considering purchasing a new home. The house you are looking at costs $120,000
    and you plan to make a 10% down payment. You checked with a bank and they have two
    mortgage loan options for you. The first is a 15-year mortgage at 6.25%. The second is a
    30year mortgage at 6.50%. What are your monthly payments for each loan?

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