![(Chapter 5, page 140)
Answer: EAR = [1 + (APR / m)]m – 1
EAR = [1 + (.09 / 4)]4 – 1= .0931 or 9.31%
EAR = [1 + (.19 / 2)]
2
– 1 = .1990 or 19.90%
3. Question :
(TCO 3) Computer Parts, Inc. is considering an investment
that will have cash flows of $8,000, $7,000 and $4,000 for
years 1 through 3. What is the approximate value of this
investment today if the appropriate discount rate is 10% per
year?
$24,250
$20,900
$16,060
None of the above
(Chapter 5, page 124-126)
Answer: $8,000 / 1.1 + $7,000 / 1.1^2 + $4,000 / 1.1^3 = $16,063
4. Question :
(TCO 3) You deposited $8,000 in your bank account today. An increase
in which of the following will increase the future value of your deposit
assuming that all interest is reinvested? Assume the interest rate is a
positive value. Select all answers that apply:
interest rate
initial amount of your deposit
frequency of the interest payments
None of the above will increase the value of the investment
5. Question :
(TCO 3) If you borrow $50,000 today at 10% interest for eight](https://image.slidesharecdn.com/week2-timevalueofmoney-homeworkessample-130724203618-phpapp02/85/DeVry-BUSN379-Week-2-homework-es-sample-2-320.jpg)
DeVry BUSN379 - Week 2 homework es sample
- 1. This is a sample of the Week 2 Homework ES Quiz DeVry BUSN379 I had an A average and barely passed this course!!! If you study these questions you’ll be learn the material and be much better prepared than I was. 1. Question : (TCO 3) You have been approved for a $70,000 loan toward the purchase of a new home at 10% interest. The mortgage is for 30 years. How much are the approximately annual payments of the loan? Hint: Assume you pay yearly. $7425 $8690 $5740 None of the above (Chapter 5, pages 132-133) Answer: $70,000 = C x (1-1/1.10^30)/.10 = C x (1-0.0573)/.10 = C x 9.4269 C = $70,000 / 9.4269 = $7,425 2. Question : (TCO 3) First Choice Bank pays 9% APR compounded quarterly on its business loans. National Emerald Bank pays 19% APR compounded semiannually. The EAR for First Choice and National Emerald Bank are: 9.31% and 19.90%, respectively 9% and 19.50%, respectively 9.31% and 19.50%, respectively 9% and 19.90%, respectively
- 2. (Chapter 5, page 140) Answer: EAR = [1 + (APR / m)]m – 1 EAR = [1 + (.09 / 4)]4 – 1= .0931 or 9.31% EAR = [1 + (.19 / 2)] 2 – 1 = .1990 or 19.90% 3. Question : (TCO 3) Computer Parts, Inc. is considering an investment that will have cash flows of $8,000, $7,000 and $4,000 for years 1 through 3. What is the approximate value of this investment today if the appropriate discount rate is 10% per year? $24,250 $20,900 $16,060 None of the above (Chapter 5, page 124-126) Answer: $8,000 / 1.1 + $7,000 / 1.1^2 + $4,000 / 1.1^3 = $16,063 4. Question : (TCO 3) You deposited $8,000 in your bank account today. An increase in which of the following will increase the future value of your deposit assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all answers that apply: interest rate initial amount of your deposit frequency of the interest payments None of the above will increase the value of the investment 5. Question : (TCO 3) If you borrow $50,000 today at 10% interest for eight
- 3. years. How much of your first payment will be applied towards the principal of the loan? $5,000 $4,372 $4,790 zero, all will be applied towards the interest (Chapter 5, page 130-134) Answer: First you need to calculate your payment: $50,000 = C x (1-1/1.10^8)/.10 = C x (1-0.4665)/.10 = C x 5.335 $50,000 / 5.335 = $9,372 Year Payment Principal Paid Interest Paid Remaining Balance 1 9,372 4,372 50,000 x 10% = 5,000.00 45,628 2 9,372 4,809.2 45,628 x 10% = 4,562.8 40,818.8 6. Question : (TCO 3) Match the following terms with the examples as appropriate: 4 : Amortized Loan » 4 :obtained a 5-year loan from your bank to buy a new machine. You will pay $500 per month to cover both interest and principal. 2 : Interest- only Loan » 2 :Corporate bonds are usually issued as this form of loans. 1 : Treasury Bill » 1 :is usually a pure discount loan issued by the US government. 3 : Pure Discount Loan » 3 :You borrow $3,000 from your bank at 10% interest. You will make no payments for two months but will return the full amount plus interest at the end of three months. (Chapter 5, pages 144-147) 7. Question : (TCO 3) You are interested in saving to buy a new machine that costs $387,120. You can deposit $32,805 in your bank
- 4. today. If your bank pays 14% annual interest on its accounts, how long will it take you to save for the new machine? about 19 years about 5 years about 12 years Can not be determined (Chapter 4, page 110-111) Answer: FV = PV(1 + r)t Solving for t, we get: t = ln(FV / PV) / ln(1 + r) FV = $387,120 = $32,805(1.14)t t = ln($387,120 / $32,805) / ln 1.14 t = 18.84 years 8. Question : (TCO 3) What are some real-life scenarios where you can apply the time value of money? - buying a house or car - evaluate an investment - valuate stocks or bonds