FIN 3303 1st Edition Lecture 6 Outline of Last Lecture I Practice Problems II Business Organization III Separation of Ownership and Control IV Liquidity Outline of Current Lecture I Midterm Review Current Lecture 1 If we wanted to increase the FV of an investment which of the following should we decrease a PV b Number of Periods c Interest Rate d Payment e None of the above 2 What is the present value of a 400 perpetuity discounted back to the present with a 9 interest a 36 000 b 40 000 c 367 d 4 444 e 3 6000 i PV PMT r PV 400 09 3 What is the PV of an investment that pays 1 800 at the end of 3 years and 400 at the end of 7 years The discount rate is 12 a 1 462 b 1 410 c 1 325 d 1 281 e None of the above i N 3 I y 12 PV 1 281 PMT 0 FV 1800 These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute 4 5 6 7 ii N 7 I y 12 PV 180 PMT 0 FV 400 1 281 180 To buy a new house you must borrow 250 000 To do this you take out a 250 000 30yr 9 mortgage Your mortgage payments which are made at the end of each year one payment each year include both principal and 9 interest on the declining balance How large will your annual PMT be a 24 334 b 26 524 c 25 000 d 82 809 e 107 651 i N 30 I y 9 PV 250 000 PMT FV 0 You have the chance to buy an annuity that pays 550 at the beginning of each year for 3 years You could earn 5 5 on your money in other investments with equal risk What is the most you should pay for the annuity a 1 412 84 b 1 487 20 c 1 565 48 d 1 643 75 e 1 725 99 i Switch calculator to beginning instead of end ii N 3 I y 5 5 PV PMT 550 FV 0 You want to buy a car and a local bank will lend you 20 000 The loan will be fully amortized over 5 years 60 months and the nominal interest rate will be 12 with interest paid monthly What will be the monthly loan payment What will be the loan s EAR a N 60 I y 1 PV 20 000 PMT 444 FV 0 b EAR 1 12 12 12 1 1268 or 12 68 Find the amount to which 500 will grow under each of these conditions a 12 compounded annually for 5 years i N 5 I y 12 PV 500 PMT 0 FV 881 b 12 compounded semiannually for 5 years i N 10 I y 6 PV 500 PMT 0 FV 895 c 12 compounded quarterly for 5 years i N 20 I y 3 PV 500 PMT 0 FV 903 d 12 compounded monthly for 5 years i N 60 I y 1 PV 500 PMT 0 FV 908 e 12 compounded daily for 5 years i N 5x365 I y 12 365 PV 500 PMT 0 FV 910 8 Shalit Corporation s 2013 Sales were 12 million Its 2008 sales were 6 million a At what rate has sales been growing i N 5 I Y 14 87 PV 6 Million PMT 0 FV 12 Million b Suppose someone made this statement Sales doubled in 5 years This represents a growth of 100 in 5 years so dividing 100 by 5 we find the growth rate to be 20 per year True or False