Question

 

6.

Investment A will make N annual payments of $500 with the first of the N payments due immediately. Investment A has a value of $20,000. Investment B is an ordinary annuity that will make (N minus 1) annual payments of $500 with the first payment due in one year from today. If investment A and investment B have the same expected return, then what is the value of investment B?

		$20,500
		The value of investment B can not be determined from the information given
		The value of investment B can be determined from the information given, but it is not equal to $19,500, $20,000, or $20,500
		$20,000
		$19,500 7. Investment A will make N annual payments of $500 with the first of the N payments due immediately. Investment B is an ordinary annuity that will make (N minus 1) annual payments of $500 with the first payment due in one year from today. Investment B has a value of $20,000. If investment A and investment B have the same expected return, then what is the value of investment A?     $19,500     $20,000     $20,500     The value of investment A can be determined from the information given, but it is not equal to $19,500, $20,000, or $20,500     The value of investment A can not be determined from the information given 8.Jens just took out a loan from the bank for 63,300 dollars. He plans to repay this loan by making a special payment to the bank of 7,070 dollars in 3 years and by also making equal, regular annual payments of X for 9 years. If the interest rate on the loan is 15.94 percent per year and he makes his first regular annual payment in 1 year, then what is X, Jens’s regular annual payment? 9.Xavier just took out a loan from the bank for 296,538 dollars. He plans to repay this loan by making a special payment to the bank of 32,922 dollars in 6 months and by also making equal, regular monthly payments of X. If the interest rate on the loan is 0.72 percent per month, he makes his first regular monthly payment later today, and he makes his last regular monthly payment made in 9 months from today, then what is X, the amount of the regular monthly payment? 10.An investment, which is worth 35,500 dollars and has an expected return of 2.82 percent, is expected to pay fixed annual cash flows for a given amount of time. The first annual cash flow is expected in 1 year from today and the last annual cash flow is expected in 5 years from today. What is the present value of the annual cash flow that is expected in 3 years from today? 11.An investment, which is worth 241,505 dollars and has an expected return of 13.49 percent, is expected to pay fixed annual cash flows for a given amount of time. The first annual cash flow is expected later today and the last annual cash flow is expected in 10 years from today. What is the present value of the annual cash flow that is expected in 2 years from today? 12.Jenny is buying a town house priced at $275,000. Mortgage A calls for her to make equal monthly payments for 15 years at a monthly interest rate of 0.80% with her first payment due in 1 month. However, her loan officer has offered her a new opportunity involving equal monthly payments for 20 years at a monthly interest rate of 0.75% with her first payment due later today. By how much would switching from mortgage A to the new opportunity reduce the amount of Jenny's monthly loan payment? 13.Fatima wants to buy a boat that is available at two dealerships. The price of the boat is the same at both dealerships. Middlefield Motors would let her make quarterly payments of 3,860 dollars for 11 years at a quarterly interest rate of 1.83 percent. Her first payment to Middlefield Motors would be due in 3 months. If Fairfax Boats would let her make equal monthly payments for 4 years at a monthly interest rate of 1.03 percent and if her first payment to Fairfax Boats would be today, then how much would each monthly payment to Fairfax Boats be? 14.Fatima just borrowed 83,364 dollars. She plans to repay this loan by making a special payment of 29,387 dollars in 7 years and by making regular annual payments of 13,147 dollars per year until the loan is paid off. If the interest rate on the loan is 17.93 percent per year and she makes her first regular annual payment of 13,147 dollars immediately, then how many regular annual payments of 13,147 dollars must Fatima make? Round your answer to 2 decimal places (for example, 2.89, 14.70, or 6.00). 15.Allysha just borrowed 46,600 dollars. She plans to repay this loan by making a special payment of 7,100 dollars in 4 years and by making regular annual payments of 6,500 dollars per year until the loan is paid off. If the interest rate on the loan is 8.78 percent per year and she makes her first regular annual payment of 6,500 dollars in one year, then how many regular annual payments of 6,500 dollars must Allysha make? Round your answer to 2 decimal places (for example, 2.89, 14.70, or 6.00). 16.Brenna wants to buy a car that is available at two dealerships. The price of the car is the same at both dealerships. Best Buggies would let her make quarterly payments of $2,250 for 5 years at a quarterly interest rate of 3.82 percent. Her first payment to Best Buggies would be due immediately. If California Cars would let her make equal monthly payments of $920 at a monthly interest rate of 1.35 percent and if her first payment to California Cars would be in 1 month, then how many monthly payments would Brenna need to make to California Cars?  Round your answer to 2 decimal places (for example, 2.89, 14.70, or 6.00). 17.Aldo wants to borrow $12,000 from the bank and is choosing among two possible loans. The interest rate on both loans is 1.4 percent per month. Loan A would require him to make 60 equal monthly payments, with the first payment made to the bank in 1 month. Loan B would also require him to make equal monthly payments to the bank. However, 1) the monthly payment associated with loan B would be $30 less than the monthly payment associated with loan A, and 2) the first monthly payment for loan B would be made to the bank later today. How many monthly payments to the bank must be made with loan B? Round your answer to 2 decimal places (for example, 2.89, 14.70, or 6.00).

Answer 1

6	INVESTMENT A
	Annual payment at the beginning of the year	$500
	Present Value of payment	$20,000
	Assume number of payments(N)	80
	Interest rate	2.05%	(Using RATE functionof excel with Nper=80, Pmt=500,PV=-20000, Type=1(Beginning of year payment)
	INVESTMENT B
	Annual payment at the end of the year	$500
	Number of payments(N-1)	79
	Interest rate	2.05%
	Present Value of payment	$19,500	(Using PV functionof excel with RATE=2.05%.Nper=79, Pmt=500,Type=0(End of year payment)
	ANSWER:
	$19,500
	It will be $19,500for any value of N
	Because in the investment B ,the first payment of $ 500immediately is not made.
7	INVESTMENT B
	Annual payment at the end of the year	$500
	Present Value of payment	$20,000
	Assume number of payments(N)	79
	Interest rate	1.96%	(Using RATE functionof excel with Nper=79, Pmt=500,PV=-20000, Type=0(End of year payment)
	INVESTMENT A
	Annual payment at the end of the year	$500
	Number of payments(N-1)	80
	Interest rate	1.96%
	Present Value of payment	$20,500	(Using PV functionof excel with RATE=2.05%.Nper=79, Pmt=500,Type=1(Beginning of year payment)
	ANSWER:
	$20,500
	It will be $20,500for any value of N
	Because in the investment B ,the first payment of $ 500 immeditely is not made.
8	Loan amount	$63,300
	Annual Interest rate= 15.94%=	0.1594
	Special Payment made after 3 years	$7,070
	Present Value of payment made after 3 years	$    4,536.49	(7070/((1+0.1594)^3)
	Balance Loan to be repaid	$58,763.51	(63300-4536.49)
	Number of payments	9
	AnnualPayment X=	$12,729.89	(Using PMT functionof excel with Rate=0.1594,Nper=9, PV=-58763.51, Type=0(End of year payment)
	Jen's regular annualpayment =X=	$12,729.89
9	Loan amount	$296,538
	Monthly Interest rate= 0.72%=	0.0072
	Special Payment made after 6 months	$32,922
	Present Value of payment made after 3 years	$ 31,534.93	32922/((1+0.0072)^6)
	Balance Loan to be repaid	$265,003.07	(296538-31534.93)
	Number of payments	9
	AnnualPayment X=	$30,296.80	(Using PMT functionof excel with Rate=0.0072,Nper=9, PV=-265003.07, Type=1(Beginning of month payment)
	Xeviar's regular monthly payment =X=	$30,296.80