BUSI 352 quiz 3 Time Value of Money solutions complete answers

BUSI 352 quiz 3 Time Value of Money solutions complete answers 

 

Five years ago today, Ron purchased a stock for $45. Over the past five years, the stock has paid the following dividends: $1.25 (year 1), $2.00 (year 2), $2.50 (year 3), $3.25 (year 4), $1.75 (year 5). At the end of the fifth year, the stock is selling for $47. What was Ron’s compounded rate of return (IRR)?

 

Starting today, Armand deposits $100 in a savings account at the beginning of each month. If the account earns 6% annually, what is the account value after 6 years?

Bryan buys a piece of equipment for $15,000. He pays $5,000 for upgrades in year 1 and the equipment generates $2,000 in cash flow for year 1. In year 2 the equipment generates $8,000, year 3 it generates $4,000, but Brandon sells it for $6,000 but also pays a $500 commission. What is his IRR?

 

Tracy wants to give her daughter $25,000 in 8 years to start her own business. How much should Tracy invest today, at an annual interest rate of 8%, compounded annually, to have $25,000 in 8 years?

 

Jason is saving for a new TV. He currently has $1,200 in his account that earns 3%, compounded monthly, and the new TV costs $4,500. Assuming Jason deposits $100 in his account each month, how many months until his account has enough money to purchase the new TV?

 

Renee’ is looking to buy a condo in 5 years for $300,000 in today’s dollars. She can earn an 8% return on her investments and she expects inflation to be 2.5%.  What serial payment should Renee’ make at the end of the second year?

 

Damian invests $5,000 today in an account earning 6% per year. How much is the investment worth in 4 years?

 

Assume $1,500 is invested for one year earning 9% and the inflation rate during that period is 3%. What is the inflation adjusted rate of return?

 

Alex is trying to decide whether he should make his IRA contribution at the beginning of the year or at the end of the year. He wants to save $5,000 per year for 25 years in his IRA that can earn 7% per year. What would be the difference in his account value if he made the payments at the beginning of each year rather than at the end?

 

Mike buys a piece of equipment for $15,000. He pays $5,000 for upgrades in year 1 and the equipment generates $2,000 in cash flow for year 1. In year 2 the equipment generates $8,000, year 3 it generates $4,000, but Mike sells it for $6,000 but also pays a $500 commission.  Mike’s required rate of return is 8%. What is the NPV?

 

Marie is considering purchasing a new car for $30,000. The dealer is offering two mutually exclusive options on the purchase: - Option 1: Receive a $4,000 rebate on the price of the car and finance the balance over 5 years at 4% interest, or - Option 2: Finance the vehicle for 7 years at 0% interest with no rebate. Which of the following options should Holly select if her goal is to minimize the total amount she pays for the car?

 

Mila has an investment account with a balance of $125,000. She intends to make withdrawals each year for the next 15 years from this account. If the investment account earns 10%, compounded annually, how much can Mila receive at the end of each year?

 

Carl has been dollar cost averaging in a mutual fund by investing $2,000 at the beginning of every quarter for the past 7 years. He earns an average annual compound return of 11% on this investment, compounded quarterly. How much is the fund worth today?

 

The Lambert’s discovered that they could reduce their mortgage interest rate from 10% to 4%. The value of homes in their neighborhood has been increasing at the rate of 5% annually. If the Lambert’s were to refinance their house with $3,000 in closing costs added to their current mortgage balance ($277,000) over a period of time which coincides with their chosen retirement age in 20 years, what would be their new monthly payment including principal and interest?

 

Julia purchases a new piece of equipment for her business. The equipment was purchased for $65,000 and is expected to generate the following cash flows at the end of each year for the next seven years: $14,000 (year 1), $19,000 (year 2), $21,000 (year 3), $21,000 (year 4), $16,000 (year 5), $11,000 (year 6), and $9,000 (year 7). Assume the equipment can be sold for $10,000 at the end of 7 years and Julia required rate of return is 9%. What is the net present value of this investment?

 

Halley has decided to save for a vacation in 18 months. She will save the money into a short-term 
investment account returning 4% annually. How much will she have to put away at the beginning of each month if the vacation cost is $15,000? (Round to the nearest dollar.)

 

Sandy recently purchased her first home for $220,000. She made a down payment of $20,000, and financed the balance over 15 years, at 6% interest.  If Sandy’s first payment is due on October 1 of this year, approximately how much of this year’s payments will be applied to the outstanding principal?

 

Mike buys a piece of equipment for $15,000. He pays $5,000 for upgrades in year 1 and the equipment generates $2,000 in cash flow for year  In year 2 the equipment generates $8,000, year 3 it generates $4,000, but Mike sells it for $6,000 but also pays a $500 commission.  Mike’s required rate of return is 8%. What is the NPV?

 

As a financial advisor, what will you tell your client, Roger, he should be willing to pay for an investment property that he plans to buy today and hold for 5 years and then sell, given the following cash flows and the fact that he expects 11% on any investment he makes?

 

 

Esther is considering purchasing a new home for $400,000. She intends to put 20% down and finance $320,000 but is unsure which financing option to select. Esther is considering the following options: - Option 1: Fixed rate mortgage over 30 years at 6% interest, zero points, or - Option 2: Fixed rate mortgage over 30 years at 4% interest, plus two discount points. How long would her financial planner recommend that she live in the house to break even using Option 2 presuming she is not financing the points?

 

Jerry received a check for $50,000 today. This was from an investment made 10 years ago. The investment earned 8% compounded quarterly. How much was his original investment?

 

Kalvin owns one share of Armstrong stock. He purchased the stock three years ago for $2 The stock is currently trading for $29.50 per share. The stock has paid the following dividends over the past three years. - Year 1: $50. - Year 2: $00. - Year 3: $50. What is the compounded rate of return (IRR) that Kalvin has earned on this investment?

 

Tim has been dollar cost averaging in a mutual fund by investing $1,500 at the beginning of every quarter for the past 5 years. He has been earning an average annual compound return of 9% compounded quarterly on this investment. How much is the fund worth today?

 

Bill owns 1 share of Verizon stock. He purchased the stock three years ago for $17.50. The stock is currently trading for $40 per share. The stock has paid the following dividends over the past three years. - Year 1: $1.00. - Year 2: $2.00. - Year 3: $3.00. What is the compounded rate of return (IRR) that Bill has earned on this investment?

 

Ashley deposits $1,500 into an account at the beginning of each year. If she earns 5%, compounded annually, how much will the account be worth in 17 years?

 

Sheila purchased a car for $19,500. She is financing the purchase at an 11% annual interest rate, compounded monthly for 3 years. What is the payment that Sheila is required to make at the end of each month?

 

Ella purchases a new house for $300,000. She put 20% down and will finance the rest over 15 years at 4.5%. What is her monthly payment?

 

Jamie deposits $10,000 in an account earning 3% interest, compounded quarterly. How much will the account balance be in 7 years?