Corporate Finance

Corporate Finance
Single Cash Flow: Show a time line and answer for each problem, and circle your final answers.
1. $25,000 invested for 15 years at 7% compounded semiannually, FV?
2. $1000 to grow to 3000 if invested at 15% compounded annually, N?
3. $530 to grow to $750 if invested at 9% compounded quarterly, N?
4. $3000 to grow to $4300 in 7 years compounded monthly, I?
5. $25,000 to be received in 15 years discounted at 8% (quarterly compounding), PV?
6. $1000 a quarter for 9 years at 10%, compounded quarterly, FVA? PVA?
Mr. Bill Preston purchased a house for $300,000. He paid $30,000 down and got a 15-year mortgage loan at the rate of 6%.
1. If he agreed to pay the loan annually over the next 15 years, what will the annual mortgage payment be? Set up loan amortization table for the first three years.
2. If he agreed to pay the loan monthly over the next 15 years, what will the monthly mortgage payment be? Develop the loan amortization table for the first three months.
To pay for his children’s education, Mr. Preston wishes to have accumulated $120,000 at the end of Year 16. To achieve this goal, he plans to invest (deposit) equal amount each month for 16 years at an annual return of 9%.
1. How much will his monthly investment be?
2. If Mr. Clark plans to save every quarter for the same goal, what would his quarterly investment be to achieve the same goal in 16 years?
Solve the following problems.
1. If ABC Bank offers to pay you $12,000 ten years from now in return for an investment of $5000 currently, what annual rate of return would you earn if you accept the offer?
2. Three personal loans are available from ABC Bank: 1) A loan at 12% compounded monthly, 2) A loan at 12.1% compounded quarterly, and 3) A loan at 12.7% compounded annually. Which alternative would you choose, Why? (Hint: Compute EARs)
3. About how many years would it take for your investment to grow threefold if it were invested at12% compounded quarterly? (Hint: Start with $100.)
Mr. Penn is trying to plan for retirement in 10 years and currently he has $150,000 in a savings account, and $250,000 in stocks. In addition, he plans to add $5,000 each to both the savings account and stock account for the coming 10 years.
1. Assuming the savings account returns 6% compounded annually and your investment in stocks will return 9% compounded annually, how much will he have at the end of 10 years (Ignore taxes)? (Hint: Set up the right time lines.)
2. If he expects to live for 20 years after you retire, and at retirement he deposits all of your available funds in a bank’s annuity account paying 8%, how much can he withdraw each year after retirement (20 equal withdrawals beginning 1 year after he retires) to end up with a zero balance at the end of 20 years?
3. Repeat 2 assuming he plans to leave $1,000,000 to his family as a monetary gift when he dies.