Response to the following questions:
1. Suzy Books Inc. wishes to borrow $225,000 today for the purchase of publishing materials. They have an agreement with their commercial banker that they can borrow money at an annual rate of 3.5%. How much will the firm owe if they repay the loan in exactly 1 year?
2. If you were able to invest $32,000 at a rate of 6.40% for 3 months, how much money would you have at the end of that period?
3. What is the present value of $5,500 received 2 years from today if the prevailing interest rate is 5.40%?
4. Toyda plans to invest money today at an interest rate of 5% compounded annually to have $50,000 available for the purchase of a car 4 years from now. How much does the firm need to invest today?
5. You own a contract that promises an annuity cash flow of $400 end-of-theyear cash flows for each of the next 6 years. (Note: The first cash flow is exactly 1 year from today). At an interest rate of 9%, what is the future value of this contract exactly 6 years from today?
6. Jane's parents have created a savings account to save for her college education. If they invest $1,000 a year at 6% interest beginning on her first birthday, how much will be in the account when she reaches age 18?
7. You own a contract that promises an annuity cash flow of $350 year-end cash flows for each of the next 3 years. (Note: The first cash flow is exactly 1 year from today). At an interest rate of 5%, what is the present value of this contract?
8. You have been accepted into a prestigious private university in Illinois for your doctoral program. Congratulations! Since no one from this school has ever graduated in only 4 years, you anticipate that you will need to make 10 semiannual tuition payments of $30,000 each with the first cash flow 6 months from today. If you choose to discount these cash flows at an annual rate of 7%, what is the present value cost of tuition to attend your university of choice?
9. You are about to purchase a new car from a dealer who has a new and unusual payment plan. You have the choice to pay $29,000 cash today or $32,000 in 4 years. If you have the opportunity to borrow the cash price value of the car at a rate of 3.0% and repay the loan in a lump sum in 4 years, which option should you take and why?
10. Which choice has a greater present value if we assume a required rate of return of 9%?
(1) A lump-sum cash flow today of $248.69
(2) $100 cash flows occurring 1, 2, and 3 years from today
(3) A single cash flow of $331 3 years from today