1.) I have an investment that will pay me $20 every quarter for the next 5 years

Question

1.) I have an investment that will pay me $20 every quarter for the next 5 years. Assuming that I want a 12% return compounded quarterly, what price should I pay for the investment?

2.) If the price of the European euro is $1.6365 (quoted at $1.6365 / euros), how many euros are necessary to purchase $1.00?

3.) You require $20,000 in 8 years for a down payment on a house. You are planning on depositing equal annual payments in an account earning 4% at the end of each year for the next 8 years. What is the dollar value of the payments required to reach your goal of $20,000?

4.) For each of the following ratios indicate whether the firm’s ratios are good or poor as compared to industry averages by placing a check in the correct column.(2 points each)

                                                                      Company Industry   Good    Poor

Inventory turnover                                                  2.5      4                 

Average collection period of receivables             8days    16 days      

Quick ratio                                                              1.1      3                 

Return on assets                                                  6.1%      4.0%     

Debt Ratio                                                           75%      50%

Explanation / Answer

1)

Present value of annuity = P×[1-(1÷(1+r)^n)]÷r

r is interest rate per period

P is payment per period

n is number of payments

Present value of annuity:

= $20×[1-(1÷(1+(12%÷4))^(5×4))]÷(12%÷4)

Maximum price of investment = $297.55

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