1) Sheryl and Marcelly both invest $1000 at 10% per year for 4 years. Sheryl receives simple interest and Marcelly gets compound interest. Use a spreadsheet and cell reference formats to develop relations that show a total of $64 more interest for Marcelly at the end of the 4 years. Assume no withdrawals or further deposits are made during the 4 years.
2) Determine the difference in the present worth values of the following two commodity contracts at an interest rate of 8% per year. Contract 1 has a cost of $10,000 in year 1; costs will escalate at a rate of 4% per year for 10 years. Contract 2 has the same cost in year 1, but costs will escalate at 6% per year for 11 years.
3) If the value of Jane's retirement portfolio increased from $ 170,000 to $813,000 over a 15-year period, with no deposits made to the account over that per
4) Acme Bricks, a masonry products company, wants to have $600,000 on hand before it invests in new conveyors, trucks, and other equipment. If the company sets aside $80,000 per year in an account that increases in value at a rate of 15% per year, how many years will it be before Acme can pur- chase the equipment?
5) Precision Instruments, Inc. manufactures highsensitivity mini accelerometers designed for modal analysis testing. The company borrowed $10,000,000 with the understanding that it would make a $2,000,000 payment at the end of year 1 and then make equal annual payments in years 2 through 5 to pay off the loan. If the interest rate on the loan was 9% per year, how much was each payment in years 2 through 5?
6) For an effective annual rate ia of 15.87% compounded quarterly, determine (a) the effective quarterly rate and (b) the nominal annual rate, (c) What is the spreadsheet function to find the nominal annual rate above?
7) An interest rate of 21% per year, compounded every 4 months, is equivalent to what effective rate per year? Show hand and spreadsheet solutions.
8) James developed the two cash flow diagrams shown at the bottom of this page. The cash flows for alternative B represent two life cycles of A. Calculate the annual worth value of each over the respective life cycles to demonstrate that they are the same. Use an interest rate of 10% per year.
9) An asset with a first cost of $20,000 has an annual operating cost of $12,000 and a $4000 salvage value after its 4-year life. If the project will be needed for 6 years, what would the market (salvage) value of the 2-year-old asset have to be for the annual worth to be the same as it is for one life cycle of the asset? Use an interest rate of 10% per year.
10) A sports mortgage is an innovative way to finance cash-strapped sports programs by allowing fans to sign up to pay a "mortgage" for the right to buy good seats at football games for several decades with season tickets locked in at current prices. At Notre Dame, the locked-in price period is 50 years. If a fan pays a $130,000 "mortgage" fee now (i.e., in year 0) when season tickets are selling for $290 each, what is the equivalent annual cost of the football tickets over the 50-year period at an interest rate of 8% per year?
11) Efficient light jets (ELJs) are smaller aircraft that may revolutionize the way people travel by plane. They cost between $1.5 and $3 million, seat 5 to 7 people, and can fly up to 1100 miles at cruising speeds approaching 425 mph. Eclipse Aerospace was founded in 2009, and its sole business is making ELJs. The company invested $500 million (time 0) and began taking orders 2 years later. If the company accepted orders for 2500 planes and received 10% down (in year 2) on planes having an average cost of $1.8 million, what rate of return will the company make over a 10-year planning period? Assume 500 of the planes are delivered each year in years 6 through 10 and that the company's M&O costs average $10 million per year in years 1 through 10. (If requested by your instructor, show both hand and spreadsheet solutions.)
12) As the name implies, a zero-coupon bond pays no dividend, only the face value when it matures. If a zero coupon bond that has a face value of $10,000 and a maturity date of 15 years is for sale for $2000, what rate of return will the purchaser make, provided the bond is held to maturity?