Essay about Week 3 Homework Fin 6000

677 Words Feb 10th, 2016 3 Pages
Week 3 Assignment 1
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1. Calculating the Number of Periods
At 8 percent interest, how long does it take to double your money? To quadruple it?

FV = PV (FVF) 8%, t = ?
$2 = $1 (FVF) 8%, t = ?
$2/ 1 = 2.0; so for FVF at 8 %, “t” is approximately 9 years.

2. Perpetuities
An investor purchasing a British consul is entitled to receive annual payments from the British government forever. What is the price of a consul that pays $160 annually if the next payment occurs one year from today? The market interest rate is 4.5 percent.

PV = C / r
PV = $160 / 0.045
PV = $3,555.56

3. Present Value and Multiple Cash Flows
Investment X offers to pay you $6,000 per year for nine
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How much can you withdraw each month from your account assuming a 25-year withdrawal period?
Note. You may use Excel to answer this question.

1st PMT = 800, I = 11/12 = .9166, N = 30 * 12 = 360
Solve FV = 2,243,224.67 Stock 1st PMT = 350, I = 6/12 = .5, N = 30 * 12 = 360
Solve FV = 351,580.26
Bonds FV of Stocks and Bonds = 2,243,224.67 + 351,580.26 = 2594804.93 2nd I = 8/12 = .67, N = 25 * 12 = 300 PVA = 2594804.93 = C*[1 + {1 / [1 + (.067/12)^300} / (.067/12)] = PMT(0.067/12,300,2594804.93) = 17,845.97 or 17846

6. Growing Perpetuities
Mark Weinstein has been working on an advanced technology in laser eye surgery. His technology will be available in the near term. He anticipates his first annual cash flow from the technology to be $210,000, received three years from today. Subsequent annual cash flows will grow at 3 percent, in perpetuity. What is the present value of the technology if the discount rate is 12 percent?

[210,000 / (12% - 3%)] / 1.12 = $2,083,333

7. Amortization with Equal Payments
Prepare an amortization schedule for a three-year loan of $69,000. The interest rate is 9 percent per year, and the loan calls for equal annual payments. How much interest is paid in the third year? How much total interest is paid over the life of the loan?

Year | Beg. Balance | Total Payment | Interest Payment | Principle Payment | Ending Balance | 1 | $ 69,000.00 | $ 27,258.78 | $ 6,210.00 | $

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