FIN 100 Week 5 - Chapter 9: P6, P9, P10, P11, P12, P13, P15

FIN100 Homework Week 5

There are three (3) types of textbook based homework items located at the end of each chapter. These include Discussion Questions (DQ), Exercises (E), and Problems (P). Some homework items have been custom created.

·         Chapter 9: P6, P9, P10, P11, P12, P13, P15

P6. Determine the present values if $5,000 is received in the future (i.e., at the end of each indicated time period) in each of the following situations:

P9. Assume you are planning to invest $5,000 each year for six years and will earn 10 percent per year. Determine the future value of this annuity if your first $5,000 is invested at the end of the first year.    Used formula;

FVa = PMT {(1+r)^n -1/r} 

P10. Determine the present value now of an investment of $3,000 made one year from now and an additional $3,000 made two years from now if the annual discount rate is 4 percent.

Using formula; PV = FV/(1+r)^n

P11. What is the present value of a loan that calls for the payment of $500 per year for six years if the discount rate is 10 percent and the first payment will be made one year from now? How would your answer change if the $500 per year occurred for ten years?

 Using formula PV = FV/(1+r)^n

P12. Determine the annual payment on a $500,000, 12 percent business loan from a commercial bank that is to be amortized over a five-year period.

 A= P{r(1+r)^n/(1+r)^n-1}

P13. Determine the annual payment on a $15,000 loan that is to be amortized over a four-year period and carries a 10 percent interest rate. Also prepared a loan amortization schedule for this loan.

P= principal loan $15,000, r=interest rate 10%, n=number of payments (which payments are annual), A=payment amounts per period

P15. Assume a bank loan required an interest payment of $85 per year and a principal payment of $1,000 at the end of the loan’s eight-year life. (We can replace P15 with Key terms see below)

a.       How much could this loan be sold for to another bank if loans are similar quality carried an 8.5 percent interest rate? That is, what would be the present value of this loan?

b.      Now, if interest rates on other similar quality loans are 10 percent, what would be the present value of this loan?

c.       What would be the present value of the loan if the interest rate is 8 percent similar-quality loans?

Key terms;

Amortized loan =

Annual percentage rate (APR) =

Annuity =

Annuity due =

Compounding =

Compound interest

Discounting =

Effective annual rate (EAR) =

FURTURE VALUE =

LOAN AMORTIZATION SCHEDULE =

Ordinary annuity =

Present value =

Rule of 72 =

Simple interest =

Time value of money =

Usury =