Assignment
1. Under which of the following discounting methods will the present value of an investment be the highest, assuming the same annual interest rate?
(a). Quarterly.
(b). Monthly.
(c). Continuous.
(d). Yearly.
2. Which of the following is a similar concept to the compound growth rate of money?
(a). The yield on a bond.
(b). The discount rate on a capital budgeting project.
(c). The internal rate of return on an investment.
(d). All of these.
3. The future value of an annuity is typically used when analyzing
(a). retirement plans.
(b). loan amortization schedules.
(c). the price of common stock.
(d). alternative capital budgeting proposals
4. What is the value of this 20 year lease? The first payment, due one year from today is $2,000 and each annual payment will increase by 4%. The discount rate used to evaluate similar leases is 9%. (Round to the nearest dollar.)
(a). $ 24,361
(b). $ 40,000
(c). $ 39,856
(d). $ 68,000
5. Time to attain goal: Elegant Designers have generated sales of $625,000 for the current year. If they can grow their sales at a rate of 12 percent every year, how long will they take to triple their sales? (Round off to the nearest year.)
(a). 10 years
(b). 7 years
(c). 8 years
(d). 9 years
6. You plan to buy a new car. The price is $30,000 and you will make a down payment of $4,000. Your annual interest rate is 10% and you intend to pay for the car over five years. What will be your monthly payment?
(a). $637.41
(b). $433.33
(c). $552.42
(d). $566.67
Part B:
Please read Chapter 5 and Chapter 6 of Parrino and Kidwell and answer the questions below.
How many of us would like to accumulate a cool million dollars by the time we retire? Money doesn't buy happiness but it sure does pay the bills. Go to the CNNMoney.com web site and play with the Millionaire calculator.
Alter the values in the table to fit your specific situation and hit the calculate button. If you don't have any taxable account, ignore (1).
The result will indicate how long it will take for you to accumulate your first MILLION.
In the middle panel below this sign
and you can check how much your money could grow if you enter the number of years.
Play with several of the values like savings per month and expected rate of return and notice how the number of yours changes.
1. What happens to the length of time it takes you to become a millionaire when you increase your savings per month?
2. What happens when you increase the expected rate of return?
3. How do taxes impact your accumulation? Why are marginal tax rates important instead of average?
4. What rate should you use for an expected return?
5. What should you do if you want to become a millionaire sooner than the calculator indicates?
Each of you have DIFFERENT conditions and constraints, show me YOUR answers/responses.