CORPORATE FINANCE –I

HOME ASSIGNMENT NO.1
Name:
Roll No:
Section:
1.

The future value of $100 received today and deposited at 6 percent for four years is
126.25

2.

The present value of $100 to be received 10 years from today, assuming an opportunity
cost of 9 percent, is 42.24

3.

The present value of a $20,000 perpetuity at a 7 percent discount rate is 285714.28

4.

Bill plans to fund his individual retirement account (IRA) with the maximum contribution
of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his
contributions, how much will he have at the end of the twentieth year?
144,104.88

5.

The future value of a $2,000 annuity due deposited at 8 percent compounded annually for
each of the next 10 years is
31290.97

6.

The future value of a $10,000 annuity due deposited at 12 percent compounded annually
for each of the next 5 years is
71151.89

7.

The future value of an ordinary annuity of $1,000 each year for 10 years, deposited at 3
percent, is 11463.88

8.

A college received a contribution to its endowment fund of $2 million. They can never
touch the principal, but they can use the earnings. At an assumed interest rate of 9.5
percent, how much can the college earn to help its operations each year? 190,000

9.

The present value of an ordinary annuity of $350 each year for five years, assuming an
opportunity cost of 4 percent, is 1558.14

10.

A generous benefactor to the local ballet plans to make a one-time endowment which
would provide the ballet with $150,000 per year into perpetuity. The rate of interest is
expected to be 5 percent for all future time periods. How large must the endowment be?
3,000,000

the amount in the account upon retirement will be 98845. If he can earn an annual compound rate of 8 percent on his deposits.000. with 20 annual deposits of $2.93 – ordinary annuity in this accumulation phase. Find the future value at the end of year 3 of the following stream of cash flows received at the end of each year.300 is received at the beginning of year 3. and $3. The present value of $1. $1.000 6.200 is received at the beginning of year 2.000 20.200 received at the end of . assumed to be annuity due) correct 91. assuming the firm can earn 17 percent on its investments.000 received at the end of year 1. To pay for her college education. 17.68 12. 16.944 19. James plans to fund his individual retirement account. Mary will receive $12. which he will continue for the next 20 years. $100 is received at the beginning of year 1. If these cash flows are deposited at 12 percent. You have been offered a project paying $300 at the beginning of each year for the next 20 years. What is the maximum amount of money you would invest in this project if you expect 9 percent rate of return to your investment? 2985.200 is received at the beginning of year 1. their combined future value at the end of year 3 is __727. If these cash flows are deposited at 12 percent. Find the future value at the end of year 3 of the following stream of cash flows received at the end of each year.000 16. $200 is received at the beginning of year 2.000 per year for the next 10 years as royalty for her work on a finance book. and $300 is received at the beginning of year 3.000 9.03 15. How much will Gina have in that account at the end of 8th year? 27551.11. Year 1 2 3 Amount $3.84(since it is a retirement plan so.523.000 19. 14.59_____.37____. $2.000 at the beginning of each year for the next eight years in a bank account paying 12 percent interest.3126 13. Year 1 2 3 Amount $10. What is the present value of her royalty income if the opportunity cost is 12 percent? 67802. assuming the firm can earn 8 percent on its investments.126. their combined future value at the end of year 3 is _8141.000 47.7 18. Gina is saving $2. beginning today. $1.

000 24. Year 1 2 3 51.000 35. Amount $20.6156 24.067. Year 1-5 6-10 131. 16. is 3043.000/yr. assuming that the firm's opportunity cost is 9 percent.000 27.168 23. assuming that the firm's opportunity cost is 14 percent.year 2.61 22. 35. Amount $10.000 Find the present value of the following stream of cash flows. The present value of $100 received at the end of year 1.000 14. is 453. and $1. assuming an opportunity cost of 13 percent.83 25. Find the present value of the following stream of cash flows. The future value of $200 received today and deposited at 8 percent compounded semi-annually for three years is 253. assuming that the firm's opportunity cost is 14 percent. $200 received at the end of year 2.0399 21. Year 1-5 6-10 79. Find the present value of the following stream of cash flows. Amount $10. assuming that the firm's opportunity cost is 25 percent.89 20.000 25. assuming an opportunity cost of 7 percent.064 . Year 1 2 3 Amount $ 5.000/yr.000/yr. and $300 received at the end of year 3. Find the present value of the following stream of cash flows.902.000/yr.300 received at the end of year 3.344.

Janice would like to send her parents on a cruise for their 25th wedding anniversary. The rate of return realized on the sale of this coin is approximately equal to 12. deposited at 12 percent compounded quarterly is 75401. Today the coin worth $450.55 32.489 for six years is approximately 7% 37.26 28. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise? 2457 31. what is the annual rate of return on the bond? 5% 30. Julian was given a gold coin originally purchased for $1 by his great-grandfather 50 years ago.064____. 27.50 per share and in the 10th year.500 at 12 percent annually compounded interest to be repaid in four equal annual installments. The actual end-of-year payment is 1481.278 if the company expects to receive $3. The original principal amount was 15002.88 29. she has decided to save $1. The future value of an annuity of $1. Young Sook owns stock in a company which has consistently paid a growing dividend over the last 10 years. Marla borrows $4.090 if the company expects to receive .96 on a five-year loan with an 8 percent interest rate.000 and she has 5 years to accumulate this money.156.198 34. The original principal amount was 24998. If a United States Savings bond can be purchased for $29.000 a quarter for the next four years in a bank account paying 12 percent interest. The first year Young Sook owned the stock. The rate of return earned on an investment of $50.37 33.000 per year for the next 10 years? 13% 38.000 today that guarantees an annuity of $10.000 each year for 10 years.996% 35. Gina has planned to start her college education four years from now.34% 36. The future value of $200 received today and deposited for three years in an account which pays semiannual interest of 8 percent is __253. she received $4. She has priced the cruise at $15. How much will she have at the end of the fourth year? Ans-----20. What is the rate of return on an investment of $16.92 per share. Marion makes annual end-of-year payments of $6. To pay for her college education. What is the rate of return on an investment of $124. Donna makes annual end-of-year payments of $5.26. What is the growth rate of the dividends over the last 10 years? 9.71 on a four-year loan with an interest rate of 13 percent.50 and has a maturity value at the end of 25 years of $100.260. she received $4.043.

For a four-year loan. 9. If she plans to make her first deposit today and can earn an annual compound rate of 9 percent on her investment.000 from the bank. Chris is planning for her son's college education to begin five years from today.91 44.000 per year for a four-year degree. A beach house in southern California now costs $350.000 per year for the next 30 years? 7% 39. Susan is planning to accumulate $40.749 45.20.000 by the end of 5 years by making 5 equal annual deposits. each in a different nation's capital. how much must he deposit at the end of each year? 17459.654. If David can earn 10 percent on his investments. The concerts will raise funds for an endowment which would provide the World Wide Hunger Fund with $3.000 per year for four years of college? 12.62 42. the bank requires annual end-of-year payments of $3.000 per year into perpetuity.$10. How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the beach house upon retirement? value of house on ret. A=11. The endowment will be given at the end of the fifth year. for her son to be able to withdraw $5. Inflation is expected to cause this price to increase at 5 percent per year over the next 20 years before Louis and Kate retire from successful careers in commercial art. The annual interest rate on the loan is 11% 43. how much must each deposit be in order to accumulate the $40.472. The rate of interest is expected to be 9 percent in all future periods. Entertainer's Aid plans five annual colossal concerts. and living expenses to be $5. How much must the art collector deposit each year to accumulate to the required amount? . A wealthy art collector has decided to endow her favorite art museum by establishing funds for an endowment which would provide the museum with $1. How much must Chris deposit today.223. The rate of interest is expected to be 6 percent in all future periods. She plans to accumulate the endowment by making annual end-of-year deposits into an account. Kathy borrows $10. The art collector will give the endowment upon her fiftieth birthday 10 years from today.000. at an interest rate of 8 percent.000 per year for acquisitions into perpetuity. How much must Entertainer's Aid deposit each year to accumulate to the required amount? 55.40 40. She estimates the yearly tuition.28.73. David wishes to accumulate $1 million by the end of 20 years by making equal annual end-of-year deposits over the next 20 years.172.000.000. 6683. books.000.698 41.69.

is repayable in 20 years by level annual instalments.e.35. Annual Saving = Annuity ordinary = Rs. Rate)t = 6. compounded annually. Oil prices are expected to increase by 3% p. what will be the value of the deposit after 20 years in terms of the constant rupees (i.50/1.03773584920= Rs.1923% Q 2.. Value of deposit after 20 yrs.661923 = $166. If i (6)= 0.26. effective. Ans. An oil well presently produces 50.417%.097.54. Q 5. If the effective annual rate of interest is known to be 16. (Time/Marks 5) ANSWER: 1 + Adjusted interest rate = 1+i = 1. Inflation is expected to cause this price to increase at 5 percent per year over the next 20 years before Luci and Kishore retire from successful careers in commercial art.a.06) .95*1.14. In terms of real rupees or constant rupees = 1.124169647 => Adjusted interest rate = i = 0.08% on a debt that has quarterly payments. real rupees)? (Time/Marks 3) ANSWER: FVA20= Rs.in a bank for 20 years at 10% p. 124169647 => So the PVOA15 = (50.97.000/. With this plan.a. she expects her salary to increase each year so that she will be able to increase her savings by 5% per year from 2 nd year onwards.a.1.67. : FVGA30=Rs. How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the beach house upon retirement? (Time/Marks 3) ANSWER: Value of the house at retirement = FV20 = Rs.541. Q 4.a.00.037735849.e.000.0000 x 50) x PVIFOA12.6.0620 = Rs.00.10. So the given cash flow stream (a growing annuity) is equivalent to a level annuity of Rs.0000 x 6. Raghu deposits Rs. What will the deposit grow to after 20 years? If the inflation rate is 6% p.492/Q 3.86..92.723.446 SOLUTIONS TO SAMPLE TVM QUESTIONS DISCUSSED IN THE CLASS Q 1.000*1.000/. Q. Ellen is 35 and decides to plan seriously for her retirement.20.1.97. i. what is the annual percentage rate (aka nominal annual rate)? (Time/Marks 3) My Answer: 15.264. However. 4.000 in the 1 st year. A beach house in Puri now costs Rs.1. .25 lakh for 15 years @ an adjusted interest rate of i = 0.727.67 (Or) Real Int. she expects to earn 10% per year on her savings. Compute how much will Ellen have saved @ age 65? (4) Ans.097. rate = (1.1 =1. calculated @ an effective annual rate of interest of 10%.10 /(0.807/-.a. find equivalent nominal interest rate convertible semi-annually.2. It will last for 15 years more.727/50=Nominal Value/Cash flow.2. Currently the price of oil is $50 per barrel.25. A housing loan of Rs. starting @ age 36. 124169647.1. 15.10/1.. She wants to save Rs.03) = 1.15.000 barrels per year.3781249% Q 2.15yrs = $25. Mr. but the production will fall by 5% p. What is the present value of the well’s production if the discount rate is 10% p. (FVA20 )Real Value/Constant Rupees = Nominal Cash flow/(1+inf.

a) What is the annual repayment ? 14.88 d) How much capital is repaid in the 6th year ? 3.208.15 b) What is the capital (principal) outstanding after 5 years ? 107.374.83 c) What is the amount of interest paid in the 6th year ? 10.27 (Answer in not more than 4 sentences. Desirable Time limit : 9 minutes) (Total 4 marks) .095.720.