Solar-light Inc. is considering a project with the following cash flows: a) Calc
ID: 2743890 • Letter: S
Question
Solar-light Inc. is considering a project with the following cash flows: a) Calculate the future value of these cash flows (end of year 4), if the Interest rate is 12%. b) What will be the future value if the interest rate is changed to 16%? Mr. Hobbit deposits $2,000 at the end of each year for the next 10 years at an interest rate of 12% per year. How much will he have accumulated at the end of 10 years? How much would he have accumulated if he deposited the amounts at the beginning of each year? Find the present value of a perpetuity that pays $2,000 per year and the interest rate is 10% Given the following data, calculate the effective annual rate (EAR) in each case Given the following data, calculate the stated (Nominal) annual rate (APR) in each case Big Bank Corp. wants to earn an effective interest rate of 9% (EAR) on its consumer loans. It uses monthly compounding on consumer loans. What should be the stated (Nominal) rate (APR) on these loans? Calculate the future value of $1,000 in 10 years assuming an interest rate of 12% (APR) compounded quarterly. Also calculate the effective annual rate (EAR) on the investment. Mr. Wise is retiring in 25 years. He would like to accumulate $1,000,000 for his retirement fund by then. He plans make equal monthly payments to achieve his goal. If the rate of return on the retirement fund is 12% (APR), what will his monthly payments be? Mr. Wise makes payments (as per problem 8) for the first ten years and stops making payments afterwards due personal problems. How much would he have accumulated at the time of retirement assuming that the accumulated amount keeps on earning interest at the stated rate on a monthly basis?Explanation / Answer
Answer 3: Present Value of Perpetuity
Present Value (PV) of Perpetuity = A/r
Where, A is the fixed periodic payment; and r is the interest rate per compounding period.
PV of Perpetuity = (2000/0.10) = $20,000
Answer 7: Future value
FV= Present Value (1+r)^n
$3,262.04
The Effective Annual Rate is what actually gets paid. If interest is compounded within the year, the Effective Annual Rate will be higher than the rate mentioned.
Effective Annual Rate = (1+(r/n))n 1
EAR= (1+.03)^4-1= 12.55%
Answer 9:
FV= Present Value (1+r)^n
Present Value (PV) of Perpetuity = A/r
Where, A is the fixed periodic payment; and r is the interest rate per compounding period.
PV of Perpetuity = (2000/0.10) = $20,000
Answer 7: Future value
FV= Present Value (1+r)^n
PV $1,000.00 n 10 years n (compounded quarterly)= n*4 40 years r 12% r (compounded quarterly)= r/4 3% FV= 1000(1+.03)^40$3,262.04
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