Question

You are buying a previously owned car today at a price of $9,470. You are paying $800 down in cash and financing the balance for 36 months at 7.8 percent, compounded monthly. What is your monthly payment amount?

	A.	$332.95
	B.	$239.46
	C.	$258.02
	D.	$270.89

Ghanata Oil has a well that will produce an annual cash flow of $236 million next year. The cash flow is expected to increase by 3.5 percent per year indefinitely. What is the well worth today if the discount rate is 15 percent?

	A.	$2,052 million
	B.	$1,725 million
	C.	$899 million
	D.	$1,573 million

A 10-year loan in the amount of $527,000 is to be repaid in equal annual payments. What is the remaining principal balance after the sixth payment if the interest rate is 5 percent, compounded annually?

	A.	$242,007
	B.	$282,310
	C.	$346,410
	D.	$299,540

You are given that the present value of the cash flow shown below is $43,800. Determine the mission cash flow if the discount rate is 11 percent.

Year	Cash Flow
1	$10,800
2	$10,800
3	$10,800
4	?????
5	$15,000

Answer 1

1. PV = 9470 - 800

FV = 0

rate = 7.8%/12

N = 36

use PMT function in Excel

monthly payments = 270.89

2. value of the well today = 236/(0.15 - 0.035) = 2052 million

3. N = 10, FV = 0, PV = 527000, rate = 5%

use PMT function in Excel

annual payments = 68,248.91

now replace n with 6, and calculate FV

value of loan after 6 years = 242,007

4.

	11.0000%
Cash flows	Year	Discounted CF
(43,800.00)	0	-43800.00
10,800.00	1	9729.73
10,800.00	2	8765.52
10,800.00	3	7896.87
-	4	0.00
15,000.00	5	8901.77

PV of missing cash flow = 8506

the missing cash flow = 8506*1.11^4 = 12,912