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Homework answers / question archive / University of Texas, Permian Basin FINA 6320 Quiz 2 1)An annuity stream where the payments occur forever is called a(n):   Bradley Snapp has deposited $6,000 in a guaranteed investment account with a promised rate of 6% compounded annually

University of Texas, Permian Basin FINA 6320 Quiz 2 1)An annuity stream where the payments occur forever is called a(n):   Bradley Snapp has deposited $6,000 in a guaranteed investment account with a promised rate of 6% compounded annually

Finance

University of Texas, Permian Basin

FINA 6320

Quiz 2

1)An annuity stream where the payments occur forever is called a(n):

 

  1. Bradley Snapp has deposited $6,000 in a guaranteed investment account with a promised rate of 6% compounded annually. He plans to leave it there for 4 full years when he will make a down payment on a car after graduation. How much of a down payment will he be able to make?

 

  1. Find the present value of $5,325 to be received in one period if the rate is 6.5%.

 

 

  1. George Jefferson established a trust fund that provides $150,000 in scholarships each year for worthy students. The trust fund earns a 4.25% rate of return. How much money did Mr. Jefferson contribute to the fund assuming that only the interest income is distributed?

 

  1. If the stated rate of interest is 12% and it is compounded monthly, what is the effective annual interest rate?

 

 

  1. If you have a choice to earn simple interest on $10,000 for three years at 8% or annually compounded interest at 7.5% for three years which one will pay more and by how much?

 

 

  1. One year ago, you invested $3,000. Today it is worth $3,142.50. What rate of interest did you earn?

 

  1. Paying off long-term debt by making installment payments is called:

 

  1. Pioneer has a project that anticipates the first annual cash flow to be $175,000 received one year from today. Subsequent annual cash flows will grow at 3.5 per cent in perpetuity. What is the present value of the project if the discount rate is 10 percent?

 

 

  1. The Ajax Co. just decided to save $1,500 a month for the next five years as a safety net for recessionary periods. The money will be set aside in a separate savings account which pays 3.25% interest compounded monthly. It deposits the first $1,500 today. If the company had wanted to deposit an equivalent lump sum today, how much would it have had to deposit?

 

 

 

  1. The present value of future cash flows minus initial cost is called:

 

 

  1. The Robertson Firm is considering a project which costs $123,900 to undertake. The project will yield cash flows of $4,894.35 monthly for 30 months. What is the rate of return on this project?

 

  1. The time value of money concept can be defined as:

 

  1. What is the future value of $1,000 a year for five years at a 6% rate of interest?

 

  1. What is the future value of investing $9,000 for 7 years at a continuously compounded rate of 11%?

 

  1. You are considering an annuity which costs $100,000 today. The annuity pays $6,000 a year. The rate of return is 4.5%. What is the length of the annuity time period?

 

 

 

  1. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why?

 

 

  1. You estimate that you will have $24,500 in student loans by the time you graduate. The interest rate is 6.5%. If you want to have this debt paid in full within five years, how much must you pay each month?

 

  1. You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual payments of $50,000 for the next five years. At a discount rate of 12%, what is this job worth to you today?
  2. You just won the lottery! As your prize you will receive $1,200 a month for 100 months. If you can earn 8% on your money, what is this prize worth to you today?

 

 

  1. You are considering a project with the following cash flows:

Year 1                    Year 2                       Year 3

$1,200                      $1,800                        $2,900

What is the present value of these cash flows, given a 9% discount rate?

 

  1. What is the future value of the following cash flows at the end of year 3 if the interest rate is 6%? The cash flows occur at the end of each year.

You are considering a project with the following cash flows:

Year 1                    Year 2                       Year 3

$5,180                $9,600                  $2,250

 

 

 

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