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Assuming a required rate of return of 8% (APR, compounded annually), what is a fair price for this expected
Present Value Formula Function
Cash flow $900 $ 567.15 $567.15
Rate 8%
Periods 6
2) You invest $20,000 in a retirement account and expect to earn a 10% annual return. How much do you expect to be in the account after 20 years?
Future value
PV 20000 $ 134,550.00 $134,550.00
rate 10%
periods 20
3) You have entered into a contract that promises $1,000 per year for the next 10 years, with the first payment being made one year from today. Assuming a disc
Annuity
cash flow
payment $1,000 $ 7,360.09 $7,360.09
rate 6%
Periods 10
4) You just purchased a share of stock at a cost of $25. You expect the stock to pay you a dividend at the end of this year of $1.75 and the price of the security a
Return expected profit Expected Return
purchase
price $ 25.00 $ 29.25 $ 4.25 17.0%
dividend $ 1.75
future
security
price $ 27.50
5) You are planning for your retirement and will be investing $250/month into an IRA. You expect a monthly return of 1% and are 45 years from your expected re
Present Value Retirement Amount
payment/
month $ 250.00 $24,884.02 $ 5,363,673.26
monthly
rate 1% $5,363,673.26
period,
45*12 540
6) An Admiralty Bond promises a payment of $50/year, forever. Assuming the first payment is expected one year from today and that an appropriate yield is 5%,
7) What is the effective annual rate of an investment that has a 12% APR that compounds at each of the following frequencies: Annually, Semi-Annually, Quarte
Annual
Percentage nominal Nominal Semi- Nominal Nominal
Rate Annual Rate Annually Quarterly Monthly
12% 12.0000% 6% 3% 1%
$112.00 $112.36 $112.55 $112.68
Effective
Rates 12.00% 12.36% 12.55% 12.68%
8) Why does the statement “managers should maximize shareholder value” equate to activities that maximizes overall social good? What are the critical assump
what is a fair price for this expected future cash flow today?
0 1 2 3 4 5 6
Value today 0 0 0 0 0 900
0 0 0 0 0 567.1527
e year from today. Assuming a discount rate of 6%, what is a fair price for this contract today?
0 1 2 3 4 5 6 7 8
Value today 1000 1000 1000 1000 1000 1000 1000 1000
$ 7,360.09 943.3962 889.9964 839.6193 792.0937 747.2582 704.9605 665.0571 627.4124
1.75 and the price of the security after the dividend is paid to be $27.50. Given this information, what is your expected annual return on this investment?
are 45 years from your expected retirement date. Given this information, how much do you expect to be in your retirement account when you retire?
nd that an appropriate yield is 5%, what is a fair price for this bond? Alternatively, assume that the first payment is expected immediately. How does the price of this bond chan
Continuously
infinite or "e"
infinite or "e"
good? What are the critical assumptions needed to reach this conclusion? Why might these assumptions not be entirely accurate?
9 10
1000 1000
591.8985 558.3948
on this investment?