1. Jing Associates, LLC, a large law firm in Denver, is building a new office. T
ID: 2810350 • Letter: 1
Question
1. Jing Associates, LLC, a large law firm in Denver, is building a new office. To pay for the construction, Jing Associates is selling a security that will pay the investor the lump sum of $38,600 in nine years. The current market price of the security is $16,429. Assuming that you can earn an annual return of 8.25% on your next most attractive investment, how much is the security worth to you today?
2. You have deposited $96,780 into an account that will earn an interest rate of 15% compounded semiannually. How much will you have in this account at the end of 14 years?
3. David needed money for some unexpected expenses, so he borrowed $5,464.40 from a friend and agreed to repay the loan in eight equal installments of $1,100 at the end of each year. The agreement is offering an implied interest rate of?
4. Your goal is to have $20,000 in your bank account by the end of four years. If the interest rate remains constant at 6% and you want to make annual identical deposits, how much will you need to deposit in your account at the end of each year to reach your goals?
5. You are planning to put $3,250 in the bank at the end of each year for the next eight years in hopes that you will have enough money for a down payment on a condo. If you are investing at an annual interest rate of 9%, you’ll have accumulated how much money at the end of eight years? Round up
6. If an investment of $30,000 is earning an interest rate of 12.00% annually, then is will take ____ years for this investment to reach a value of $70,186.96 - assuming that no additional deposits or withdrawals are made during this time. Fill in the blank.
7. The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations.
If a security currently worth $12,800 will be worth $18,807.40 five years in the future, what is the implied interest rate the investor will earn on the security - assuming that no additional deposits or withdrawals are made?
8. Jing Associates, LLC, a large law firm in Denver, is building a new office. To pay for the construction, Jing Associates is selling a security that will pay the investor the lump sum of $38,600 in nine years. The current market price of the security is $16,429.
Assume that you can earn an annual return of 8.25% on your next most attractive investment.
From strictly a financial perspective, why or why not?
Because the discounted value of the security's future cash flows is greater than the cost of the security
Because the cost of the security is greater than the discounted value of the security's future cash flows.
9. Jing Associates, LLC, a large law firm in Denver, is building a new office. To pay for the construction, Jing Associates is selling a security that will pay the investor the lump sum of $38,600 in nine years. The current market price of the security is $16,429.
Assume that you can earn an annual return of 8.25% on your next most attractive investment.
From strictly a financial perspective, should you invest in the Jing security?
Yes
No
A.Because the discounted value of the security's future cash flows is greater than the cost of the security
B.Because the cost of the security is greater than the discounted value of the security's future cash flows.
Explanation / Answer
1. Jing Associates, LLC, a large law firm in Denver, is building a new office. To pay for the construction, Jing Associates is selling a security that will pay the investor the lump sum of $38,600 in nine years. The current market price of the security is $16,429. Assuming that you can earn an annual return of 8.25% on your next most attractive investment, how much is the security worth to you today?
Option 1: Using financial calculator:
PMT=0
I/Y=8.25%
N=9
FV=38600
CPT PV
Option 2: Using excel:
=PV(8.25%,9,0,38600)=
Option 3: Using mathematical formula:
=38600/1.0825^9
Answer:$18,911.94
2. You have deposited $96,780 into an account that will earn an interest rate of 15% compounded semiannually. How much will you have in this account at the end of 14 years?
Option 1: Using financial calculator:
PMT=0
PV=96780
N=14*2
I/Y=15%/2
CPT FV
Option 2: Using excel:
=FV(15%/2,14*2,0,96780)
Option 3: Using mathematical formula:
=96780*(1+15%/2)^(14*2)
Answer:$733,200.27
3. David needed money for some unexpected expenses, so he borrowed $5,464.40 from a friend and agreed to repay the loan in eight equal installments of $1,100 at the end of each year. The agreement is offering an implied interest rate of?
Option 1: Using financial calculator:
PMT=-1100
PV=5464.40
N=8
CPT I/Y
Option 2:Using excel:
=RATE(8,-1100,5464.40)
Answer:12%
4. Your goal is to have $20,000 in your bank account by the end of four years. If the interest rate remains constant at 6% and you want to make annual identical deposits, how much will you need to deposit in your account at the end of each year to reach your goals?
Option 1: Using financial calculator:
PV=0
FV=20000
N=4
I/Y=6%
CPT PMT
Option 2:Using excel:
=PMT(6%,4,0,20000)
Answer:$4,571.83
P.S.: I have answered 4 questions.
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