# Business finance

1.Jack Hammer invests in a stock that will pay dividends of $3.01 at the end of the first year; $3.32 at the end of the second year; and $3.63 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $51.

What is the present value of all future benefits if a discount rate of 8 percent is applied? Use Appendix B for an approximate answer, but calculate your final answer using the formula and financial calculator methods

2. our grandfather has offered you a choice of one of the three following alternatives: $14,500 now; $7,500 a year for five years; or $101,000 at the end of five years. Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

a-1.

Assuming you could earn 9 percent annually, compute the present value of each alternative

3. Franklin Templeton has just invested $10,260 for his son (age one). This money will be used for his sonâ€™s education 20 years from now. He calculates that he will need $168,197 by the time the boy goes to school.

What rate of return will Mr. Templeton need in order to achieve this goal? Use Appendix B for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

4. On January 1, 2011, Mr. Dow bought 100 shares of stock at $22 per share. On December 31, 2013, he sold the stock for $28 per share.

What is his annual rate of return? Use Appendix B for an approximate answer, but calculate your final answer using the financial calculator method.

5. Morgan Jennings, a geography professor, invests $96,000 in a parcel of land that is expected to increase in value by 16 percent per year for the next eight years. He will take the proceeds and provide himself with a 12-year annuity.

Assuming a 16 percent interest rate, how much will this annuity be? Use Appendix A and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

6. Cal Lury owes $34,000 now. A lender will carry the debt for eight more years at 9 percent interest. That is, in this particular case, the amount owed will go up by 9 percent per year for eight years. The lender then will require that Cal pay off the loan over the next 16 years at 12 percent interest.

What will his annual payment be? Use Appendix A and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

7.

Larry Davis borrows $82,000 at 12 percent interest toward the purchase of a home. His mortgage is for 30 years. Use Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

a.

How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate

Annual payments:

How much interest will he pay over the life of the loan?

Amount of interest:

How much should he be willing to pay to get out of a 12 percent mortgage and into a 10 percent mortgage with 30 years remaining on the mortgage? Assume current interest rates are 10 percent. Carefully consider the time value of money. Disregard taxes.

Amount to be paid:

8.

You are chairperson of the investment fund for the Continental Soccer League. You are asked to set up a fund of semiannual payments to be compounded semiannually to accumulate a sum of $270,000 after fifteen years at a 14 percent annual rate (30 payments). The first payment into the fund is to take place six months from today, and the last payment is to take place at the end of the fifteenth year. Use Appendix A and Appendix C for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

a.

Determine how much the semiannual payment should be.

Semi annual payment:

On the day after the sixth payment is made (the beginning of the fourth year), the interest rate goes up to an annual rate of 16 percent. This new rate applies to the funds that have been accumulated as well as all future payments into the fund. Interest is to be compounded semiannually on all funds.

b.

Determine how much the revised semiannual payments should be after this rate change (there are 24 payments and compounding dates). The next payment will be in the middle of the fourth year

Revised semi annual payment:

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**Category**: Business Studies