Accounting Finance, accounting homework help
Please complete In Excel
1. Perpetuity
If an investment policy pays you $25,000 per year forever and you require 6% p.a. return on this investment, how much will you pay for this policy? What about a policy that pays $30,000 per year?
2. EAR
Calculate the EAR in the following cases:
|
APR |
compounding |
EAR |
|
10% |
Quarterly |
|
|
17% |
Monthly |
|
|
13% |
Daily |
|
|
9% |
Semi-annually |
Hint: Use the EFFECT function in Excel.
3. APR
Find the APR for each of the following cases:
|
APR |
compounding |
EAR |
|
Semi-annually |
14.00% |
|
|
Monthly |
9.00% |
|
|
Weekly |
8.00% |
|
|
Daily |
13.00% |
Hint: Use the NOMINAL function in Excel.
4. Present Values
Calculate the present values for the two following cash flows:
|
Discount Rate |
Discount Rate |
||
|
7.30% |
9.20% |
||
|
Year |
Cash Flow from A |
Cash Flow from B |
|
|
1 |
$1,200 |
$1,400 |
|
|
2 |
1,100 |
1,900 |
|
|
3 |
800 |
3400 |
|
|
4 |
600 |
4300 |
5. Annuity and Perpetuity
You are going to receive a 30-year annuity of $105,000. Your friend, Nancy, is going to receive a perpetuity of $105,000. If the appropriate interest rate is 7% p.a., how much more is Nancy’s cash flow worth than yours?
6. Comparing Cash Flows
You’ve just joined a new firm. They offered you two different salary arrangements:
A. $6,100 per month for the next two years.
B. $4,800 per month for the next two years, plus a $25,000 signing bonus.
If the interest rate is 7% p.a., which arrangement do you prefer?
7. Future Values
Assuming an interest rate of 6.9% p.a., what is the future value of the following cash flows five years from now? What is the future value 10 years from now?
|
Year to find value |
10 |
|
Interest rate |
6.9% |
|
Year |
Cash flow |
|
2 |
$ 15,000 |
|
3 |
24,000 |
|
5 |
33,000 |
8. Future Values
An insurance company is offering a new policy. The parent makes the following six payments to the insurance company, and no more payments after child’s sixth birthday. When the child reaches age 65, he/she receives $350,000. If the interest rate is 10% for the first 6 years, and 7% for all subsequent years, is the policy worth buying?
|
Year |
Payment |
|
1 |
$ 800 |
|
2 |
$ 800 |
|
3 |
$ 900 |
|
4 |
$ 900 |
|
5 |
$ 1,000 |
|
6 |
$ 1,000 |
|
# of years until retirement |
65 |
|
Payout at retirement |
$ 350,000 |
|
Interest rate 1 |
10% |
|
# of years |
6 |
|
Interest rate 2 |
7% |
|
# of years |
59 |
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