FIN 260 Assignment 2

FIN 260
Assignment 2
1. First City Bank pays 7% simple
interest on its savings account balances, whereas Second City Bank pays 7%
compounded annually. If you made a $6,000 deposit in each bank, how much more
money would you earn from your Second City Bankaccount at the end of 9 years?
2. At 6.5
percent interest, how long does it take to quadruple your money?
3. You are
scheduled to receive $15,000in two years. When you receive it, you will invest
it for six more years at 7.1 percent per year. How much will you have in eight
years?
4.Investment
X offers to pay you $5,200 per year for eight years, whereas investment Y
offers to pay you $7,300 per year for five years. Which of these cash flow
streams has the higher present value if the discount rate is 5 percent?
5. First
National Bank charges 13.2 percent compounded monthly on its business loans.
First United Bank charges 13.5 percent compounded semiannually. As a potential
borrower, which bank would you go to for a new loan?
6. You want
to have $75,000 in your savings account 12 years from now, and you are prepared
to make equal annual deposits into the account at the end of each year. If the
account pays 6.8 percent interest, what amount must you deposit each year?
7. What is
the future value of $2,600 in 19 years assuming an interest rate of 7.9 percent
compounded semiannually?
8. You want
to buy a new sports coupe for $83,500, and the finance office at the dealership
has quoted you 6.5 percent APR loan for 60 months to buy the new car. What will
your monthly payments be?
9. First
Simple Bank pays 9 percent simple interest on its investments accounts. If
First Complex Bank pays interest on its accounts compounded annually, what rate
should the bank set if it wants to match First Simple Bank over an investment
horizon of 10 years?
10. You’ve
just joined the investment-banking firm of JP Morgan. They’ve offered you two
different salary arrangements. You can have $75,000 per year for the next two
years, or you can have $64,000 per year for the next two years, along with a
$20,000 signing bonus today. If the interest rate is 10% compounded monthly,
which do you prefer?
11. You
have just won the lottery and will receive $1,000,000 in one year. You will
receive payments for 30 years, which will increase 3 percent per year. If the
appropriate discount rate is 7 percent, what is the present value of your
winnings? (Hint: think of the annuity
types i.e. growing annuity, perpetuity etc.)
12.
You are prepared to make monthly payments of $ 290, beginning at the end of this
month, into an account that pays 7 percent interest compounded monthly. How
many payments will you have made when your account balance reaches $20,000?