Question

In: Finance

Use the tables for the following problem. Maya wants to buy her first home in six...

Use the tables for the following problem.

Maya wants to buy her first home in six years.  Maya plans to save $4,000 per year out of her annual bonus at the end of the year. Her savings account, which is compounded annually, earns an annual rate of 6%.  How much will Maya have for her down payment?

Table ________________

Row _________________

Column (rate) _________

Factor _______________

Future Value ___________

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Camden’s Antiques, Inc. just added a whole new line of furniture to his product line.  Camden expects this addition to result in record high dividends of $3.15 and $4.15 in the next two years.  After that, he thinks his growth will level off at its usual 3% rate.  The rate expected in the marketplace for investments similar to Camden’s is 5%.

What is the current value of a share of Camden’s? ______________

What will the value of a share be in year two (P2)? ______________

What will the value of a share be in year thirteen (P13)? ______________

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Max is thinking about buying a $1,000 bond that has a 5% semiannual coupon and 12 years to maturity.  The expected rate in the marketplace for investments similar to this is 7.5%.

Will this bond be a premium or discount bond? __________________

What is the present value of the coupon stream? ________________

What is the present value of the face value? ____________________

What is the total value of the bond? ___________________________

If the bond is priced at 98, should Max buy or not buy? ___________

Solutions

Expert Solution

Compute the present value annuity factor (PVIFA), using the equation as shown below:

PVIFA = {1 – (1 + Rate)^-Number of periods}/ Rate

                   = {1 – (1 + 0.06)^-6}/ 6%

             = 4.91732432586

Hence, the present value annuity factor is 4.91732432586.

Compute the down payment amount, using MS-excel as shown below:

The result of the above excel table is as follows:

Hence, the down payment amount is $27,901.27

jeff jeffy answered 2 years ago
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