Your answers to the multiple choice questions should go on page 2. There is no p

ID: 2540747 • Letter: Y

Question

Your answers to the multiple choice questions should go on page 2. There is no partial credit on these questions. with the first payment due in six months, and annual interest is at 6%, what is the amount of each payment? A. $25,750 8. $29,761 C. $30,139 D. $25,500. E. $50,000 1. Rosie's Florist borrows $300,000 to be paid off in six years. The loan payments are semiannual Alternatively, the employee can take $10,000 each June 1 for five years, beginning in 2020. Assuming the employee's time value of money is 9% annually, what lump sum at employment date would make him indifferent between the two options? A. $44,035 B. $40,855 C. $69,035 D. $30,035 E. $39,000. 2. Garland Inc. offers a new employee a lump-sum signing bonus at the date of employment, June 1, 2016 Koko Company will pay $10 million at the beginning of each year for 10 years to Mocha Inc. for a building with a fair value of $75 million. What is the interest rate used to calculate the annual payments? A. Between 13% and 14%. B. Between 7% and 8% C. Between 5.5% and 6% D. Not enough information to determine the answer E. None of the above 3.

Explanation / Answer

1. C $30,139

300,000 * 9.954 where 9.954 is the resent value of annuity of $1, n = 6*2 = 12, i = 6%/2 = 3%

Sum of the figures shown below: (first is = 1.03^(-1) , second is 1.03^(-2) and so on.

0.9708738

0.9425959

0.9151417

0.8884870

0.8626088

0.8374843

0.8130915

0.7894092

0.7664167

0.74409391

0.72242128

0.70137988

9.95400399

2. D $30,035

Present value on June 1 2020 = 10,000 * (1+1/1.09+1/1.09^2+1/1.09^3+1/1.09^4) = 42,397

Present value on June 1 2016 = 42,397 * 1/1.09^4 = 42397*0.7084 = 30,035

3. B Between 7% and 8%

0.07

0.08

0.9345794

0.9259259

0.8734387

0.8573388

0.8162979

0.7938322

0.7628952

0.7350299

0.7129862

0.6805832

0.6663422

0.6301696

0.6227497

0.5834904

0.5820091

0.5402689

0.5439337

0.5002490

7.5152322

7.2468879

10000000

75,152,322.49

72,468,879.11

$75M lies between 7% and 8%.

4. E

Convertible bonds can be converted into common stock at the option of the bondholder (and not at the option of the issuer)

5. D $6,000

Interest payable on June 30 = 100,000 * 6% *6/12 = 3,000

Interest payable on December 31 = 100,000 * 6% *6/12 = 3,000

Interest expense for 2018 = 3000+3000 = $6,000