Soultions Assignment 2, Part 1 Answers 1. Future Value. What is the future value

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Soultions Assignment 2, Part 1      Answers 1. Future Value. What is the future value of a.$550 inveted for 5 years at 15 percent compounded annually? b. $650 invested for 15 years at 14 percent compounded annually? 2. Present Value. What is the present value of a. $453 to be received 8 years from now at a 14 percent discount rate? b. $1200 to be received 7 years from now at a 12 percent discount rate? 3. Future Value of an Annuity. What is the future value of a. $1321 a year for 13 years at 13 percent compounded annually? b. $867 a year for 10 years at 13 percent compounded annually? 4. Present Value of an Annuity. What is the present value of a. $487 a year for 5 years at a 9 percent discount rate? b. $798 a year for 13 years at a 11 percent discount rate? 5. Annuity. How many years will it take for a payment of a. $590 to grow to 9090.91 at a compound rate of 14 percent? b. $900 to grow to future value of 10,586.21 at a compound rate of 14 percent? 6. Mortgage. (Hint: P/Y=12) What is the payoff on a 30 year, 7% original mortgage of a. $550,552 with a payment of 3,744.50 with 12 years remaining? a. b. $190788 with a payment of 1,143.87 with 15 years remaining? 7. Stock. What is the required rate of return on a stock with a a. $0.75 expected dividend and a 34 price with 7% growth? b. $1.25 expected dividend and a 15 price with 8% growth?

Explanation / Answer

1a.$550 inveted for 5 years at 15 percent compounded annually=550*(1.15^5)=1106.24

1b.$650 invested for 15 years at 14 percent compounded annually=650*(1.14^15)=4639.66

2.a.$453 to be received 8 years from now at a 14 percent discount rate=453/(1.14^8)=158.80

2b. $1200 to be received 7 years from now at a 12 percent discount rate=1200/(1.12^7)=542.81

3a.. $1321 a year for 13 years at 13 percent compounded annually=1321*(1.13^13-1)*(1.13)/(0.13)=44759.

3b. $867 a year for 10 years at 13 percent compounded annually=867*(1.13^10-1)*(1.13)/(0.13)=18046

4a.a. $487 a year for 5 years at a 9 percent discount rate=487*(1.09^5-1)/(1.09^5*0.09)=1894.26

4b. $798 a year for 13 years at a 11 percent discount rate=798*(1.11^13-1)/(1.11^13*0.11)=5386.39

7a.. $0.75 expected dividend and a 34 price with 7% growth=(0.75/34)+0.07=9.20

7b. $1.25 expected dividend and a 15 price with 8% growth=(1.25/15)+0.08=16.33

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