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Question: problem 1 find the following values a the future value...

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Problem 1

Find the following values:

a. The future value of a lump sum of $6,000 invested today at 9 percent, annual compounding for 7 years.

b. The future value of a lump sum of $6,000 invested today at 9 percent, quarterly compounding for 7 years.

c. The present value of $6,000 to be received in 7 years when the opportunity cost (discount rate) is 9%, annual compounding.

d. The present value of $6,000 to be received in 7 years when the opportunity cost (discount rate) is 9% quarterly compounding.

e. What is the effective annual rate (EAR) if the stated rate is 10% and compounding occurs monthly?

f. What is the present value of an ordinary annuity who pays $1,500 per year for ten years at 8 percent?

g. What is the present value of an annuity due who pays $1,500 per year for ten years at 8 percent?

h. What is the future value of an ordinary annuity who pays $1,500 per year for ten years at 8 percent?

i. What is the future value of an annuity due who pays $1,500 per year for ten years at 8 percent?

Problem 2

Assume that you just won $40,000,000 in the Florida lottery, and hence the state will pay you 25 annual payments of $1,600,000 each beginning immediately. If the rate of return on securities of similar risk to the lottery earnings is 4 percent, what is the present value of your winnings? Please show your work.

Problem 3

Boston Healthcare has just borrowed $2,000,000 on a seven-year, annual payment term loan at a 6 percent rate. The first payment is due one year from now. Construct the amortization schedule for this loan.

Problem 4

Assume Florida Hospital has just approved a $200,000 annual (per year) bonus to retain its top cardiac surgeon. Assume that $200,000 will be paid to the surgeon as a bonus at the end of each year for eight years. Florida Hospital wants to invest a lump sum now in order to have enough money to cover the bonus over the eight-year period. Assume the hospital can earn a 6 percent stated annual rate of return on its investment, compounded monthly. What amount would Florida Hospital need to invest now in order to have enough money to pay the annual bonus to the surgeon at the end of each of the next eight years?

Problem 5

Consider the following investment cash flows:

Year

Cash Flow

0

($16,000)

1

3,000

2

4,000

3

5,000

4

6,000

5

7,000

a. What is the return expected on this investment measured in dollar terms if the opportunity cost is 6%.

b. What is the return on this investment measured in percentage terms?

c. Is the investment profitable? Explain your answer.

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