Homework: Financial Management
This homework will allow you to demonstrate the following objectives:
o Calculate the annual payment on a loan using the present value of an annuity.
o Use discounting to determine the present value of an annuity.
o Calculate the future value of an annuity and periodic annuity payments.
o Determine the present value of a bond.
Instructions: Answer the questions directly on this document. Show all of your work.
• Your supervisor has tasked you with evaluating several loans related to a new expansion project. Using the PVIFA table (table 9.4 in the textbook), determine the annual payment on a $400,000, 8% business loan from a commercial bank that is to be amortized over a five-year period. Show your work. Does this payment seem reasonable? Explain.
• Dan is considering borrowing $500,000 to purchase a new condo. Based on that information, answer the following questions. Show all work.
o Calculate the monthly payment needed to amortize an 8% fixed-rate 30-year mortgage loan.
o Calculate the monthly amortization payment if the loan in (a.) was for 15 years instead.
o In a few sentences, explain the effect of a smaller loan period. How does it influence the monthly payment and interest?
• Use a financial calculator or computer software program to answer the following questions:
o Melanie is trying to save money for retirement and has a future goal of $600,000 at the end of 20 years. Determine the present value of her goal using a discount rate of 11%.
o How would the present value change if the $600,000 is to be received at the end of 15 years instead? Explain the impact and show your work?
• Your friend Anne is planning to invest $400 each year for four years and will earn a rate of 6 percent per year.
o Determine the future value of this annuity due if her first $400 is invested now. Show your work.
o What is the difference between an annuity due and an ordinary annuity? Explain.
• Jimmy has a bond with a $1,000 face value and a coupon rate of 9.5% paid semiannually. It has a five-year life.
o If investors are willing to accept a 14 percent rate of return on bonds of similar quality, what is the present value or worth of this bond? Show your work.
o What is the impact of paying interest semi-annually rather than annually? Explain.
Format your homework according to the give formatting requirements:
• The answer must be using Times New Roman font (size 12), double spaced, typed, with one-inch margins on all sides.
• The response also includes a cover page containing the student's name, the title of the homework, the course title, and the date. The cover page is not included in the required page length.
• Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.