FNAN 301, Spring 2012, final, solutionsFind PV of one investment to find value of other and then when other makes single CF1. Georgia owns two investments, A and B, that have a om!ined total value of "3#,000.$nvestment A is e%peted to pa& "23,000 in ' &ears from toda& and has an e%peted return of (.) perent per &ear.$nvestment B is e%peted to pa& "32,000 in * &ears from toda& and has an e%peted return of ).( perent per &ear.+hat is *, the num!er of &ears from toda& that investment B is e%peted to pa& "32,000,A. A num!er less than -.'0 or a num!er greater than 10.'0B. A num!er e.ual to or greater than -.'0 !ut less than #.30/. A num!er e.ual to or greater than #.30 !ut less than 0.001. A num!er e.ual to or greater than 0.00 !ut less than 0.#02. A num!er e.ual to or greater than 0.#0 !ut less than 10.'01. Georgia owns two investments, A and B, that have a om!ined total value of "3#,000.$nvestment A is e%peted to pa& "32,000 in ' &ears from toda& and has an e%peted return of (.) perent per &ear.$nvestment B is e%peted to pa& "23,000 in * &ears from toda& and has an e%peted return of ).( perent per &ear.+hat is *, the num!er of &ears from toda& that investment B is e%peted to pa& "23,000,A. A num!er less than -.'0 or a num!er greater than 10.'0B. A num!er e.ual to or greater than -.'0 !ut less than #.30/. A num!er e.ual to or greater than #.30 !ut less than 0.001. A num!er e.ual to or greater than 0.00 !ut less than 0.#02. A num!er e.ual to or greater than 0.#0 !ut less than 10.'01. Georgia owns two investments, A and B, that have a om!ined total value of "3#,000.$nvestment A is e%peted to pa& "23,000 in ' &ears from toda& and has an e%peted return of ).( perent per &ear.$nvestment B is e%peted to pa& "32,000 in * &ears from toda& and has an e%peted return of (.) perent per &ear.+hat is *, the num!er of &ears from toda& that investment B is e%peted to pa& "32,000,A. A num!er less than -.'0 or a num!er greater than 10.'0B. A num!er e.ual to or greater than -.'0 !ut less than #.30/. A num!er e.ual to or greater than #.30 !ut less than 0.001. A num!er e.ual to or greater than 0.00 !ut less than 0.#02. A num!er e.ual to or greater than 0.#0 !ut less than 10.'01. Georgia owns two investments, A and B, that have a om!ined total value of "3#,000.$nvestment A is e%peted to pa& "32,000 in ' &ears from toda& and has an e%peted return of ).( perent per &ear.$nvestment B is e%peted to pa& "23,000 in * &ears from toda& and has an e%peted return of (.) perent per &ear.+hat is *, the num!er of &ears from toda& that investment B is e%peted to pa& "23,000,A. A num!er less than -.'0 or a num!er greater than 10.'0B. A num!er e.ual to or greater than -.'0 !ut less than #.30/. A num!er e.ual to or greater than #.30 !ut less than 0.001. A num!er e.ual to or greater than 0.00 !ut less than 0.#02. A num!er e.ual to or greater than 0.#0 !ut less than 10.'01FNAN 301, Spring 2012, final, solutionsFind next CF of growing perpetuity and then use growth rate to get future CF2. Georgia owns a vending mahine that is worth "3#,000 and is e%peted to ma3e annual ash flows forever.*he ost of apital is 0.34.*he ne%t annual ash flow is e%peted in one &ear from toda& and all su!se.uent ash flows are e%peted to grow annuall& !& '.-4.+hat is the ash flow produed !& the vending mahine in ' &ears from toda& e%peted to !e,2. Georgia owns a vending mahine that is worth "3#,000 and is e%peted to ma3e annual ash flows forever.*he ost of apital is 0.34.*he ne%t annual ash flow is e%peted in one &ear from toda& and all su!se.uent ash flows are e%peted to grow annuall& !& '.-4.+hat is the ash flow produed !& the vending mahine in ) &ears from toda& e%peted to !e,2. Georgia owns a vending mahine that is worth "3#,000 and is e%peted to ma3e annual ash flows forever.*he ost of apital is 0.34.*he ne%t annual ash flow is e%peted in one &ear from toda& and all su!se.uent ash flows are e%peted to grow annuall& !& '.-4.+hat is the ash flow produed !& the vending mahine in - &ears from toda& e%peted to !e,2. Georgia owns a vending mahine that is worth "3#,000 and is e%peted to ma3e annual ash flows forever.*he ost of apital is 0.34.*he ne%t annual ash flow is e%peted in one &ear from toda& and all su!se.uent ash flows are e%peted to grow annuall& !& '.-4.+hat is the ash flow produed !& the vending mahine in # &ears from toda& e%peted to !e,2FNAN 301, Spring 2012, final, solutionsFind payment with PV annuity and an extra, interim cash flow3. 1at 5ust too3 out a loan from the !an3 for "13,000.6e plans to repa& this loan !& ma3ing a speial pa&ment to the !an3 of "(,000 in 3 &ears and !& also ma3ing e.ual, regular annual pa&ments of 7 per &ear for ' &ears.$f the interest rate on the loan is 12.3 perent per &ear and hema3es his first regular annual pa&ment in 1 &ear, then what is 7, 1at8s regular annual pa&ment,Assume that 1at ma3es two pa&ments in 3 &ears9 the e%tra pa&ment of "(,000 and the regular annual pa&ment of 7.A. An amount less than "2,-3'.00 or an amount greater than or e.ual to "2,03'.00B. An amount e.ual to or greater than "2,-3'.00 !ut less than "2,-#'.00/. An amount e.ual to or greater than "2,-#'.00 !ut less than "2,#3'.001. An amount e.ual to or greater than "2,#3'.00 !ut less than "2,##'.002. An amount e.ual to or greater than "2,##'.00 !ut less than "2,03'.003. 1at 5ust too3 out a loan from the !an3 for "13,000.6e plans to repa& this loan !& ma3ing a speial pa&ment to the !an3 of "(,000 in 2 &ears and !& also ma3ing e.ual, regular annual pa&ments of 7 per &ear for ' &ears.$f the interest rate on the loan is 12.3 perent per &ear and hema3es his first regular annual pa&ment in 1 &ear, then what is 7, 1at8s regular annual pa&ment,Assume that 1at ma3es two pa&ments in 2 &ears9 the e%tra pa&ment of "(,000 and the regular annual pa&ment of 7.A. An amount less than "2,-3'.00 or an amount greater than or e.ual to "2,03'.00B. An amount e.ual to or greater than "2,-3'.00 !ut less than "2,-#'.00/. An amount e.ual to or greater than "2,-#'.00 !ut less than "2,#3'.001. An amount e.ual to or greater than "2,#3'.00 !ut less than "2,##'.002. An amount e.ual to or greater than "2,##'.00 !ut less than "2,03'.003. 1at 5ust too3 out a loan from the !an3 for "13,000.6e plans to repa& this loan !& ma3ing a speial pa&ment to the !an3 of "(,000 in 3 &ears and !& also ma3ing e.ual, regular annual pa&ments of 7 per &ear for ' &ears.$f the interest rate on the loan is 13.2 perent per &ear and hema3es his first regular annual pa&ment in 1 &ear, then what is 7, 1at8s regular annual pa&ment,Assume that 1at ma3es two pa&ments in 3 &ears9 the e%tra pa&ment of "(,000 and the regular annual pa&ment of 7.A. An amount less than "2,-3'.00 or an amount greater than or e.ual to "2,03'.00B. An amount e.ual to or greater than "2,-3'.00 !ut less than "2,-#'.00/. An amount e.ual to or greater than "2,-#'.00 !ut less than "2,#3'.001. An amount e.ual to or greater than "2,#3'.00 !ut less than "2,##'.002. An amount e.ual to or greater than "2,##'.00 !ut less than "2,03'.003. 1at 5ust too3 out a loan from the !an3 for "13,000.6e plans to repa& this loan !& ma3ing a speial pa&ment to the !an3 of "(,000 in 2 &ears and !& also ma3ing e.ual, regular annual pa&ments of 7 per &ear for ' &ears.$f the interest rate on the loan is 13.2 perent per &ear and hema3es his first regular annual pa&ment in 1 &ear, then what is 7, 1at8s regular annual pa&ment,Assume that 1at ma3es two pa&ments in 2 &ears9 the e%tra pa&ment of "(,000 and the regular annual pa&ment of 7.A. An amount less than "2,-3'.00 or an amount greater than or e.ual to "2,03'.00B. An amount e.ual to or greater than "2,-3'.00 !ut less than "2,-#'.00/. An amount e.ual to or greater than "2,-#'.00 !ut less than "2,#3'.001. An amount e.ual to or greater than "2,#3'.00 !ut less than "2,##'.002. An amount e.ual to or greater than "2,##'.00 !ut less than "2,03'.003FNAN 301, Spring 2012, final, solutionsFind annuity due value and expected return from fixed perpetuity to compare value & risk(. $nvestment A has an e%peted return of 0.- perent and is e%peted to pa& "-' per &ear for a finite num!er of &ears suh that its first annual pa&ment is e%peted later toda& and its last annual pa&ment is e%peted in ' &ears from toda&.$nvestment B is e%peted to pa& "31 per &ear forever, is e%peted to ma3e its first pa&ment in 1 &ear from toda&, and has a value of "32'.Based on the given information, whih one of the following assertions is true,A. $nvestment A is more valua!le than investment B and investment A has more ris3 than investment BB. $nvestment A is more valua!le than investment B and investment B has more ris3 than investment A/. $nvestment B is more valua!le than investment A and investment A has more ris3 than investment B1. $nvestment B is more valua!le than investment A and investment B has more ris3 than investment A2. $nvestment A is e.uall& as valua!le as investment B or investment A has the same amount of ris3 as investment B(. $nvestment A has an e%peted return of 0.- perent and is e%peted to pa& "-' per &ear for a finite num!er of &ears suh that its first annual pa&ment is e%peted later toda& and its last annual pa&ment is e%peted in ) &ears from toda&.$nvestment B is e%peted to pa& "3- per &ear forever, is e%peted to ma3e its first pa&ment in 1 &ear from toda&, and has a value of "3-'.Based on the given information, whih one of the following assertions is true,A. $nvestment A is more valua!le than investment B and investment A has more ris3 than investment BB. $nvestment A is more valua!le than investment B and investment B has more ris3 than investment A/. $nvestment B is more valua!le than investment A and investment A has more ris3 than investment B1. $nvestment B is more valua!le than investment A and investment B has more ris3 than investment A2. $nvestment A is e.uall& as valua!le as investment B or investment A has the same amount of ris3 as investment B(. $nvestment A has an e%peted return of -.0 perent and is e%peted to pa& "-' per &ear for a finite num!er of &ears suh that its first annual pa&ment is e%peted later toda& and its last annual pa&ment is e%peted in ' &ears from toda&.$nvestment B is e%peted to pa& "20 per &ear forever, is e%peted to ma3e its first pa&ment in 1 &ear from toda&, and has a value of "3''.Based on the given information, whih one of the following assertions is true,A. $nvestment B is more valua!le than investment A and investment B has more ris3 than investment AB. $nvestment B is more valua!le than investment A and investment A has more ris3 than investment B/. $nvestment A is more valua!le than investment B and investment B has more ris3 than investment A1. $nvestment A is more valua!le than investment B and investment A has more ris3 than investment B2. $nvestment A is e.uall& as valua!le as investment B or investment A has the same amount of ris3 as investment B(. $nvestment A has an e%peted return of -.0 perent and is e%peted to pa& "-' per &ear for a finite num!er of &ears suh that its first annual pa&ment is e%peted later toda& and its last annual pa&ment is e%peted in ) &ears from toda&.$nvestment B is e%peted to pa& "30 per &ear forever, is e%peted to ma3e its first pa&ment in 1 &ear from toda&, and has a value of "3#'.Based on the given information, whih one of the following assertions is true,A. $nvestment B is more valua!le than investment A and investment B has more ris3 than investment AB. $nvestment B is more valua!le than investment A and investment A has more ris3 than investment B/. $nvestment A is more valua!le than investment B and investment B has more ris3 than investment A1. $nvestment A is more valua!le than investment B and investment A has more ris3 than investment B2. $nvestment A is e.uall& as valua!le as investment B or investment A has the same amount of ris3 as investment B(FNAN 301, Spring 2012, final, solutionsFind missing CF associated with future value of multiple cash flows'. $f Georgia e%pets to invest "13,(00 in 1 &ear from toda& in an aount that is e%peted to earn'.1 perent per &ear, and she e%pets to ma3e another investment in the same aount in ( &ears from toda&, then how muh mone& does Georgia e%pet to invest in ( &ears from toda& if she e%pets to have "3#,000 in her aount in ) &ears from toda&,A. An amount less than "1',000 or an amount greater than or e.ual to "10,000B. An amount e.ual to or greater than "1',000 !ut less than "1),000/. An amount e.ual to or greater than "1),000 !ut less than "1-,0001. An amount e.ual to or greater than "1-,000 !ut less than "1#,0002. An amount e.ual to or greater than "1#,000 !ut less than "10,000'. $f Georgia e%pets to invest "1',200 in 1 &ear from toda& in an aount that is e%peted to earn'.1 perent per &ear, and she e%pets to ma3e another investment in the same aount in ( &ears from toda&, then how muh mone& does Georgia e%pet to invest in ( &ears from toda& if she e%pets to have "3#,000 in her aount in ) &ears from toda&,A. An amount less than "1',000 or an amount greater than or e.ual to "10,000B. An amount e.ual to or greater than "1',000 !ut less than "1),000/. An amount e.ual to or greater than "1),000 !ut less than "1-,0001. An amount e.ual to or greater than "1-,000 !ut less than "1#,0002. An amount e.ual to or greater than "1#,000 !ut less than "10,000'. $f Georgia e%pets to invest "13,(00 in 1 &ear from toda& in an aount that is e%peted to earn'.1 perent per &ear, and she e%pets to ma3e another investment in the same aount in 2 &ears from toda&, then how muh mone& does Georgia e%pet to invest in 2 &ears from toda& if she e%pets to have "3#,000 in her aount in ) &ears from toda&,A. An amount less than "1',000 or an amount greater than or e.ual to "10,000B. An amount e.ual to or greater than "1',000 !ut less than "1),000/. An amount e.ual to or greater than "1),000 !ut less than "1-,0001. An amount e.ual to or greater than "1-,000 !ut less than "1#,0002. An amount e.ual to or greater than "1#,000 !ut less than "10,000'. $f Georgia e%pets to invest "1',200 in 1 &ear from toda& in an aount that is e%peted to earn'.1 perent per &ear, and she e%pets to ma3e another investment in the same aount in 2 &ears from toda&, then how muh mone& does Georgia e%pet to invest in 2 &ears from toda& if she e%pets to have "3#,000 in her aount in ) &ears from toda&,A. An amount less than "1',000 or an amount greater than or e.ual to "10,000B. An amount e.ual to or greater than "1',000 !ut less than "1),000/. An amount e.ual to or greater than "1),000 !ut less than "1-,0001. An amount e.ual to or greater than "1-,000 !ut less than "1#,0002. An amount e.ual to or greater than "1#,000 !ut less than "10,000'FNAN 301, Spring 2012, final, solutionsSave with annuity and then give a growing perpetuity: what is first perpetuity CF). Georgia wants to reate a sholarship fund !& ma3ing annual savings donations to the fund forseveral &ears !efore the fund starts ma3ing annual sholarship pa&ments forever.She plans to save "(',000 per &ear in a trust fund for ( &ears.6er first savings donation to the trust fund is e%peted in 1 &ear from toda&.+hat is the e%peted amount of the sholarship pa&ment that the trust fund will ma3e in ' &ears from toda& if the fund is e%peted to have a return of #.3 perent per &ear, ma3e annual sholarship pa&ments that grow annuall& !& (.( perent forever, and ma3eits first annual sholarship pa&ment in ' &ears from toda&,). Georgia wants to reate a sholarship fund !& ma3ing annual savings donations to the fund forseveral &ears !efore the fund starts ma3ing annual sholarship pa&ments forever.She plans to save "(',000 per &ear in a trust fund for ( &ears.6er first savings donation to the trust fund is e%peted in 1 &ear from toda&.+hat is the e%peted amount of the sholarship pa&ment that the trust fund will ma3e in ' &ears from toda& if the fund is e%peted to have a return of #.3 perent per &ear, ma3e annual sholarship pa&ments that grow annuall& !& 3.0 perent forever, and ma3eits first annual sholarship pa&ment in ' &ears from toda&,). Georgia wants to reate a sholarship fund !& ma3ing annual savings donations to the fund forseveral &ears !efore the fund starts ma3ing annual sholarship pa&ments forever.She plans to save "'(,000 per &ear in a trust fund for ( &ears.6er first savings donation to the trust fund is e%peted in 1 &ear from toda&.+hat is the e%peted amount of the sholarship pa&ment that the trust fund will ma3e in ' &ears from toda& if the fund is e%peted to have a return of #.3 perent per &ear, ma3e annual sholarship pa&ments that grow annuall& !& (.( perent forever, and ma3eits first annual sholarship pa&ment in ' &ears from toda&,). Georgia wants to reate a sholarship fund !& ma3ing annual savings donations to the fund forseveral &ears !efore the fund starts ma3ing annual sholarship pa&ments forever.She plans to save "'(,000 per &ear in a trust fund for ( &ears.6er first savings donation to the trust fund is e%peted in 1 &ear from toda&.+hat is the e%peted amount of the sholarship pa&ment that the trust fund will ma3e in ' &ears from toda& if the fund is e%peted to have a return of #.3 perent per &ear, ma3e annual sholarship pa&ments that grow annuall& !& 3.0 perent forever, and ma3eits first annual sholarship pa&ment in ' &ears from toda&,)FNAN 301, Spring 2012, final, solutionsFindthen !" from FV and payments-. 1at is planning to save "(- eah month for ( &ears.6e plans to ma3e his first ontri!ution to his aount in 1 month from toda&.$f he has "000 in his aount toda& and e%pets to have "3,0(0.#3 in his aount in ( &ears from toda&, immediatel& after ma3ing his last pa&ment, then what is the 2A: that he e%pets to earn on his aount,A. A rate less than #.004 or a rate greater than or e.ual to 0.)04B. A rate e.ual to or greater than #.004 !ut less than #.(04/. A rate e.ual to or greater than #.(04 !ut less than #.#041. A rate e.ual to or greater than #.#04 !ut less than 0.2042. A rate e.ual to or greater than 0.204 !ut less than 0.)04-. 1at is planning to save "(- eah month for ( &ears.6e plans to ma3e his first ontri!ution to his aount in 1 month from toda&.$f he has "000 in his aount toda& and e%pets to have "3,0-#.0( in his aount in ( &ears from toda&, immediatel& after ma3ing his last pa&ment, then what is the 2A: that he e%pets to earn on his aount,A. A rate less than #.004 or a rate greater than or e.ual to 0.)04B. A rate e.ual to or greater than #.004 !ut less than #.(04/. A rate e.ual to or greater than #.(04 !ut less than #.#041. A rate e.ual to or greater than #.#04 !ut less than 0.2042. A rate e.ual to or greater than 0.204 !ut less than 0.)04-. 1at is planning to save "(- eah month for ( &ears.6e plans to ma3e his first ontri!ution to his aount in 1 month from toda&.$f he has "000 in his aount toda& and e%pets to have "3,003.1' in his aount in ( &ears from toda&, immediatel& after ma3ing his last pa&ment, then what is the 2A: that he e%pets to earn on his aount,A. A rate less than #.004 or a rate greater than or e.ual to 0.)04B. A rate e.ual to or greater than #.004 !ut less than #.(04/. A rate e.ual to or greater than #.(04 !ut less than #.#041. A rate e.ual to or greater than #.#04 !ut less than 0.2042. A rate e.ual to or greater than 0.204 !ut less than 0.)04-. 1at is planning to save "(- eah month for ( &ears.6e plans to ma3e his first ontri!ution to his aount in 1 month from toda&.$f he has "000 in his aount toda& and e%pets to have "3,#-#.2# in his aount in ( &ears from toda&, immediatel& after ma3ing his last pa&ment, then what is the 2A: that he e%pets to earn on his aount,A. A rate less than #.004 or a rate greater than or e.ual to 0.)04B. A rate e.ual to or greater than #.004 !ut less than #.(04/. A rate e.ual to or greater than #.(04 !ut less than #.#041. A rate e.ual to or greater than #.#04 !ut less than 0.2042. A rate e.ual to or greater than 0.204 !ut less than 0.)04-FNAN 301, Spring 2012, final, solutionsConceptual: identify which #ond has higher coupon rate and higher $%& from relative price #. Bonds A, B, /, and 1 have fae values of "1000, pa& semi;annual oupons with the ne%t oupon due in ) months, and mature in * &ears.Bonds A and B have different oupon rates, and !onds / and 1 have different &ields;to;maturit&.+hih assertion is true if *@ than !ond /2. None of the a!ove assertions is true#. Bonds A, B, /, and 1 have fae values of "1000, pa& semi;annual oupons with the ne%t oupon due in ) months, and mature in * &ears.Bonds A and B have different oupon rates, and !onds / and 1 have different &ields;to;maturit&.+hih assertion is true if *@ than !ond /2. None of the a!ove assertions is true#FNAN 301, Spring 2012, final, solutions#. Bonds A, B, /, and 1 have fae values of "1000, pa& semi;annual oupons with the ne%t oupon due in ) months, and mature in * &ears.Bonds A and B have different oupon rates, and !onds / and 1 have different &ields;to;maturit&.+hih assertion is true if *@ than !ond /2. None of the a!ove assertions is true#. Bonds A, B, /, and 1 have fae values of "1000, pa& semi;annual oupons with the ne%t oupon due in ) months, and mature in * &ears.Bonds A and B have different oupon rates, and !onds / and 1 have different &ields;to;maturit&.+hih assertion is true if *@ than !ond /2. None of the a!ove assertions is true0FNAN 301, Spring 2012, final, solutionsFind semi'annual coupon from return and then find coupon rate0. Bonds issued !& 2rie Shipping were pried at "0-).00 si% months ago and are pried at "0-1.00 toda&.*he !onds have a fae value of "1,000, pa& semi;annual oupons, and 5ust made a oupon pa&ment.*he !onds had a perentage return over the past si% months of '.)4.+hat is the oupon rate of the !onds,0. Bonds issued !& 2rie Shipping were pried at "02).00 si% months ago and are pried at "023.00 toda&.*he !onds have a fae value of "1,000, pa& semi;annual oupons, and 5ust made a oupon pa&ment.*he !onds had a perentage return over the past si% months of '.)4.+hat is the oupon rate of the !onds,0. Bonds issued !& 2rie Shipping were pried at "0-).00 si% months ago and are pried at "0-1.00 toda&.*he !onds have a fae value of "1,000, pa& semi;annual oupons, and 5ust made a oupon pa&ment.*he !onds had a perentage return over the past si% months of ).'4.+hat is the oupon rate of the !onds,0. Bonds issued !& 2rie Shipping were pried at "02).00 si% months ago and are pried at "023.00 toda&.*he !onds have a fae value of "1,000, pa& semi;annual oupons, and 5ust made a oupon pa&ment.*he !onds had a perentage return over the past si% months of ).'4.+hat is the oupon rate of the !onds,10FNAN 301, Spring 2012, final, solutionsFind current price from expected dividend and price in (uarter with annual expected return10. 2rie Shipping sto3 pa&s .uarterl& dividends and has an e%peted annual return of 13.2 perent.*he sto3 is e%peted to have a share prie of "23.)# immediatel& after pa&ing its ne%t .uarterl& dividend in 3 months from toda& and is e%peted to have a share prie of "2(.11 immediatel& after pa&ing its .uarterl& dividend in ) months from toda&.+hat is the urrent prie of 2rie Shipping sto3 if the .uarterl& dividend in 3 months from toda& is e%peted to !e "1.20,A. An amount less than "2(.00 or an amount greater than or e.ual to "'(.00B. An amount e.ual to or greater than "2(.00 !ut less than "2).00/. An amount e.ual to or greater than "2).00 !ut less than "2#.001. An amount e.ual to or greater than "2#.00 !ut less than "().002. An amount e.ual to or greater than "().00 !ut less than "'(.0010. 2rie Shipping sto3 pa&s .uarterl& dividends and has an e%peted annual return of 13.2 perent.*he sto3 is e%peted to have a share prie of "23.)# immediatel& after pa&ing its ne%t .uarterl& dividend in 3 months from toda& and is e%peted to have a share prie of "2(.11 immediatel& after pa&ing its .uarterl& dividend in ) months from toda&.+hat is the urrent prie of 2rie Shipping sto3 if the .uarterl& dividend in 3 months from toda& is e%peted to !e "1.02,A. An amount less than "2(.00 or an amount greater than or e.ual to "'(.00B. An amount e.ual to or greater than "2(.00 !ut less than "2).00/. An amount e.ual to or greater than "2).00 !ut less than "2#.001. An amount e.ual to or greater than "2#.00 !ut less than "().002. An amount e.ual to or greater than "().00 !ut less than "'(.0010. 2rie Shipping sto3 pa&s .uarterl& dividends and has an e%peted annual return of 13.2 perent.*he sto3 is e%peted to have a share prie of "2).3# immediatel& after pa&ing its ne%t .uarterl& dividend in 3 months from toda& and is e%peted to have a share prie of "2-.11 immediatel& after pa&ing its .uarterl& dividend in ) months from toda&.+hat is the urrent prie of 2rie Shipping sto3 if the .uarterl& dividend in 3 months from toda& is e%peted to !e "1.20,A. An amount less than "2(.00 or an amount greater than or e.ual to "'(.00B. An amount e.ual to or greater than "2(.00 !ut less than "2).00/. An amount e.ual to or greater than "2).00 !ut less than "2#.001. An amount e.ual to or greater than "2#.00 !ut less than "().002. An amount e.ual to or greater than "().00 !ut less than "'(.0010. 2rie Shipping sto3 pa&s .uarterl& dividends and has an e%peted annual return of 13.2 perent.*he sto3 is e%peted to have a share prie of "2).3# immediatel& after pa&ing its ne%t .uarterl& dividend in 3 months from toda& and is e%peted to have a share prie of "2-.11 immediatel& after pa&ing its .uarterl& dividend in ) months from toda&.+hat is the urrent prie of 2rie Shipping sto3 if the .uarterl& dividend in 3 months from toda& is e%peted to !e "1.02,A. An amount less than "2(.00 or an amount greater than or e.ual to "'(.00B. An amount e.ual to or greater than "2(.00 !ut less than "2).00/. An amount e.ual to or greater than "2).00 !ut less than "2#.001. An amount e.ual to or greater than "2#.00 !ut less than "().002. An amount e.ual to or greater than "().00 !ut less than "'(.0011FNAN 301, Spring 2012, final, solutionsFind g from !, )*, and P+ computed #y valuing #ond11. Georgia has one share of sto3 and one !ond issued !& 2rie Shipping.*he total value of the two seurities is "1,300.*he !ond has a >*@ of #.0 perent, an annual oupon rate of 0.# perent, and a fae value of "1,000.*he !ond matures in 11 &ears and pa&s semi;annual oupons with the ne%t one e%peted in ) months.*he sto3 is e%peted to pa& an annual dividend ever& &ear forever, the ne%t dividend is e%peted to !e "'.)1 in 1 &ear, all su!se.uent dividends are e%peted to grow at the same annual growth rate, and the e%peted return for the sto3 is 11.24.+hat is the annual growth rate of the sto38s dividend e%peted to !e,11. Georgia has one share of sto3 and one !ond issued !& 2rie Shipping.*he total value of the two seurities is "1,300.*he !ond has a >*@ of #.0 perent, an annual oupon rate of 0.# perent, and a fae value of "1,000.*he !ond matures in 13 &ears and pa&s semi;annual oupons with the ne%t one e%peted in ) months.*he sto3 is e%peted to pa& an annual dividend ever& &ear forever, the ne%t dividend is e%peted to !e ").'1 in 1 &ear, all su!se.uent dividends are e%peted to grow at the same annual growth rate, and the e%peted return for the sto3 is 11.24.+hat is the annual growth rate of the sto38s dividend e%peted to !e,11. Georgia has one share of sto3 and one !ond issued !& 2rie Shipping.*he total value of the two seurities is "1,300.*he !ond has a >*@ of #.0 perent, an annual oupon rate of 0.# perent, and a fae value of "1,000.*he !ond matures in 13 &ears and pa&s semi;annual oupons with the ne%t one e%peted in ) months.*he sto3 is e%peted to pa& an annual dividend ever& &ear forever, the ne%t dividend is e%peted to !e "'.)1 in 1 &ear, all su!se.uent dividends are e%peted to grow at the same annual growth rate, and the e%peted return for the sto3 is 12.14.+hat is the annual growth rate of the sto38s dividend e%peted to !e,11. Georgia has one share of sto3 and one !ond issued !& 2rie Shipping.*he total value of the two seurities is "1,300.*he !ond has a >*@ of #.0 perent, an annual oupon rate of 0.# perent, and a fae value of "1,000.*he !ond matures in 11 &ears and pa&s semi;annual oupons with the ne%t one e%peted in ) months.*he sto3 is e%peted to pa& an annual dividend ever& &ear forever, the ne%t dividend is e%peted to !e ").'1 in 1 &ear, all su!se.uent dividends are e%peted to grow at the same annual growth rate, and the e%peted return for the sto3 is 12.14.+hat is the annual growth rate of the sto38s dividend e%peted to !e,12FNAN 301, Spring 2012, final, solutionsFind ,PV and pay#ack to decide whether to accept-re.ect a pro.ect12. *he following ta!le presents information on a potential pro5et with onventional ash flows urrentl& !eing evaluated !& 2rie Shipping.+hih assertion a!out statement 1 and statement 2 is true,2%peted ash flows ?num!er of &ears from toda&A Bpportunit& ost ofapital 0 1 2 3 (;-),000 3#,000 20,000 10,000 ),000 13.24Statement 19 2rie Shipping would aept the pro5et !ased on the pro5et8s net present value ?NA if 7 is the relevant operating ash flow ?B/FA assoiated with the pro5et e%peted in &ear 2 of the pro5et and > is the relevant B/F assoiated with the pro5et e%peted in &ear ( of the pro5et,1). 2rie Shipping is evaluating a pro5et that would re.uire an initial investment in e.uipment of "#00,000 and is e%peted to !e in operation for ( &ears.@A/:S depreiation would !e used with a three;&ear shedule where the depreiation rates in &ears 1, 2, 3, and ( are 33.334, ((.((4, 1(.#24, and -.(14, respetivel&.For eah &ear of the pro5et, 2rie Shipping e%pets relevant, inremental revenue assoiated with the pro5et to !e "1#-,000 and relevant, inremental osts assoiated with the pro5et to !e "(2,000.*he ta% rate is 2' perent.+hat is ?7 plus >A if 7 is the relevant operating ash flow ?B/FA assoiated with the pro5et e%peted in &ear 2 of the pro5et and > is the relevant B/F assoiated with the pro5et e%peted in &ear ( of the pro5et,1)FNAN 301, Spring 2012, final, solutions3et geometric from arithmetic and all #ut one return1-. A sto3 had returns of 1-4, ;2(4, and 134 in eah of the past three &ears.Bver the past four &ears, the arithmeti average annual return for the sto3 was ).'4.+hat was the geometrireturn for the sto3 over the past four &ears,A. A rate less than (.004 or a rate greater than or e.ual to #.004B. A rate e.ual to or greater than (.004 !ut less than '.004/. A rate e.ual to or greater than '.004 !ut less than ).0041. A rate e.ual to or greater than ).004 !ut less than -.0042. A rate e.ual to or greater than -.004 !ut less than #.0041-. A sto3 had returns of 2(4, ;1-4, and 134 in eah of the past three &ears.Bver the past four &ears, the arithmeti average annual return for the sto3 was ).'4.+hat was the geometrireturn for the sto3 over the past four &ears,A. A rate less than (.004 or a rate greater than or e.ual to #.004B. A rate e.ual to or greater than (.004 !ut less than '.004/. A rate e.ual to or greater than '.004 !ut less than ).0041. A rate e.ual to or greater than ).004 !ut less than -.0042. A rate e.ual to or greater than -.004 !ut less than #.0041-. A sto3 had returns of 1-4, ;2(4, and 134 in eah of the past three &ears.Bver the past four &ears, the arithmeti average annual return for the sto3 was #.'4.+hat was the geometrireturn for the sto3 over the past four &ears,A. A rate less than (.004 or a rate greater than or e.ual to #.004B. A rate e.ual to or greater than (.004 !ut less than '.004/. A rate e.ual to or greater than '.004 !ut less than ).0041. A rate e.ual to or greater than ).004 !ut less than -.0042. A rate e.ual to or greater than -.004 !ut less than #.0041-. A sto3 had returns of 2(4, ;1-4, and 134 in eah of the past three &ears.Bver the past four &ears, the arithmeti average annual return for the sto3 was #.'4.+hat was the geometrireturn for the sto3 over the past four &ears,A. A rate less than (.004 or a rate greater than or e.ual to #.004B. A rate e.ual to or greater than (.004 !ut less than '.004/. A rate e.ual to or greater than '.004 !ut less than ).0041. A rate e.ual to or greater than ).004 !ut less than -.0042. A rate e.ual to or greater than -.004 !ut less than #.0041-FNAN 301, Spring 2012, final, solutions3et expected S) from 2 states and P+, )*, and P* in those states1#. Shares of 2rie Shipping are urrentl& pried at "1).00 per share.*he following ta!le indiates what ould happen with the 2rie Shipping sto3 prie and dividend per share over the ne%t &ear.+hat is the e%peted standard deviation of 2rie Shipping sto38s returns,Butomer:7 < 29,+++ - =*5+?@:7< ;*8,9@8&ode is not relevant since P&% < +!nter 7 ?5@ + 29,+++, AB PV P&% FVSolve for '*8,9@8Anvestment " is worth ;*8,9@82: Find the value of investment 4 as the value of #oth " and 4 minus the value of "Value of 4 < value of " and 4 C value of "Value of " and 4 < ;98,+++Value of " < ;*8,9@8Value of 4 < ;98,+++ C ;*8,9@8 < ;*D,@92 9: Find %, the num#er of years from today that investment 4 is expected to pay ;92,+++&ode is not relevant since P&% < +!nter @5? '*D,@92 + 92,+++, AB PV P&% FVSolve for 6588"nswers may vary slightly due to rounding"nswer: 46588 is num#er e(ual to or greater than 657+ #ut less than 859+2)FNAN 301, Spring 2012, final, solutions1. Georgia owns two investments, A and B, that have a om!ined total value of "3#,000.$nvestment A is e%peted to pa& "32,000 in ' &ears from toda& and has an e%peted return of (.) perent per &ear.$nvestment B is e%peted to pa& "23,000 in * &ears from toda& and has an e%peted return of ).( perent per &ear.+hat is *, the num!er of &ears from toda& that investment B is e%peted to pa& "23,000,A. A num!er less than -.'0 or a num!er greater than 10.'0B. A num!er e.ual to or greater than -.'0 !ut less than #.30/. A num!er e.ual to or greater than #.30 !ut less than 0.001. A num!er e.ual to or greater than 0.00 !ut less than 0.#0!5 " num#er e(ual to or greater than D58+ #ut less than *+57+%o solve:*: Find the value of investment "2: Find the value of investment 4 as the com#ined value of #oth " and 4 minus the value of "9: Find %, the num#er of years from today that investment 4 is expected to pay ;29,+++*: Find the value of investment "PV+ < Ct - =*>r:tCt < 92,+++r < 5+?@t < 7PV+ < C7 - =*>r:7 < 92,+++ - =*5+?@:7< ;27,77@&ode is not relevant since P&% < +!nter 7 ?5@ + 92,+++, AB PV P&% FVSolve for '27,77@Anvestment " is worth ;27,77@2: Find the value of investment 4 as the value of #oth " and 4 minus the value of "Value of 4 < value of " and 4 C value of "Value of " and 4 < ;98,+++Value of " < ;27,77@Value of 4 < ;98,+++ C ;27,77@ < ;*2,??? 9: Find %, the num#er of years from today that investment 4 is expected to pay ;29,+++&ode is not relevant since P&% < +!nter @5? '*2,??? + 29,+++, AB PV P&% FVSolve for D5D+"nswers may vary slightly due to rounding"nswer: !D5D+ is num#er e(ual to or greater than D58+ #ut less than *+57+2-FNAN 301, Spring 2012, final, solutions1. Georgia owns two investments, A and B, that have a om!ined total value of "3#,000.$nvestment A is e%peted to pa& "23,000 in ' &ears from toda& and has an e%peted return of ).( perent per &ear.$nvestment B is e%peted to pa& "32,000 in * &ears from toda& and has an e%peted return of (.) perent per &ear.+hat is *, the num!er of &ears from toda& that investment B is e%peted to pa& "32,000,A. A num!er less than -.'0 or a num!er greater than 10.'0B. A num!er e.ual to or greater than -.'0 !ut less than #.30/. A num!er e.ual to or greater than #.30 !ut less than 0.00)5 " num#er e(ual to or greater than D5++ #ut less than D58+2. A num!er e.ual to or greater than 0.#0 !ut less than 10.'0%o solve:*: Find the value of investment "2: Find the value of investment 4 as the com#ined value of #oth " and 4 minus the value of "9: Find %, the num#er of years from today that investment 4 is expected to pay ;92,+++*: Find the value of investment "PV+ < Ct - =*>r:tCt < 29,+++r < 5+@?t < 7PV+ < C7 - =*>r:7 < 29,+++ - =*5+@?:7< ;*@,8@@&ode is not relevant since P&% < +!nter 7 @5? + 29,+++, AB PV P&% FVSolve for '*@,8@@Anvestment " is worth ;*@,8@@2: Find the value of investment 4 as the value of #oth " and 4 minus the value of "Value of 4 < value of " and 4 C value of "Value of " and 4 < ;98,+++Value of " < ;*@,8@@Value of 4 < ;98,+++ C ;*@,8@@ < ;2*,*9? 9: Find %, the num#er of years from today that investment 4 is expected to pay ;92,+++&ode is not relevant since P&% < +!nter ?5@ '2*,*9? + 92,+++, AB PV P&% FVSolve for D522"nswers may vary slightly due to rounding"nswer: )D522 is num#er e(ual to or greater than D5++ #ut less than D58+2#FNAN 301, Spring 2012, final, solutions1. Georgia owns two investments, A and B, that have a om!ined total value of "3#,000.$nvestment A is e%peted to pa& "32,000 in ' &ears from toda& and has an e%peted return of ).( perent per &ear.$nvestment B is e%peted to pa& "23,000 in * &ears from toda& and has an e%peted return of (.) perent per &ear.+hat is *, the num!er of &ears from toda& that investment B is e%peted to pa& "23,000,A. A num!er less than -.'0 or a num!er greater than 10.'0B. A num!er e.ual to or greater than -.'0 !ut less than #.30/. A num!er e.ual to or greater than #.30 !ut less than 0.001. A num!er e.ual to or greater than 0.00 !ut less than 0.#0!5 " num#er e(ual to or greater than D58+ #ut less than *+57+%o solve:*: Find the value of investment "2: Find the value of investment 4 as the com#ined value of #oth " and 4 minus the value of "9: Find %, the num#er of years from today that investment 4 is expected to pay ;29,+++*: Find the value of investment "PV+ < Ct - =*>r:tCt < 92,+++r < 5+@?t < 7PV+ < C7 - =*>r:7 < 92,+++ - =*5+@?:7< ;27,77@&ode is not relevant since P&% < +!nter 7 @5? + 92,+++, AB PV P&% FVSolve for '29,?@@Anvestment " is worth ;29,?@@2: Find the value of investment 4 as the value of #oth " and 4 minus the value of "Value of 4 < value of " and 4 C value of "Value of " and 4 < ;98,+++Value of " < ;29,?@@Value of 4 < ;98,+++ C ;29,?@@ < ;*?,79? 9: Find %, the num#er of years from today that investment 4 is expected to pay ;29,+++&ode is not relevant since P&% < +!nter ?5@ '*?,79? + 29,+++, AB PV P&% FVSolve for *+52*"nswers may vary slightly due to rounding"nswer: !*+52* is num#er e(ual to or greater than D58+ #ut less than *+57+20FNAN 301, Spring 2012, final, solutionsFind next CF of growing perpetuity and then use growth rate to get future CF2. Georgia owns a vending mahine that is worth "3#,000 and is e%peted to ma3e annual ash flows forever.*he ost of apital is 0.34.*he ne%t annual ash flow is e%peted in one &ear from toda& and all su!se.uent ash flows are e%peted to grow annuall& !& '.-4.+hat is the ash flow produed !& the vending mahine in ' &ears from toda& e%peted to !e,"5 ;*,6+8 =plus or minus ;*+:B. "1,#0' ?plus or minus "10A/. "1,00# ?plus or minus "10A1. "1,0'2 ?plus or minus "10A2. None of the a!ove is within "10 of the orret answer%ime + * 2 9 ? 7 @ 6 8 ECashflow+ FF G=*5+76:F G=*5+76:2F G=*5+76:9F G=*5+76:?F G=*5+76:7F G=*5+76:@F G=*5+76:6EPresentvalue98,+++"pproach:*: find the expected cash flow in * year2: use the expected cash flow in * year and the growth rate to find the expected cash flow in7 years*: find the expected cash flow in * year%he cash flows reflect a growing perpetuityPV < C* - =r C g:PV < 98,+++r < 5+D9g < 5+7698,+++ < C* - =5+D9 C 5+76: < C* - 5+9@ C* < 98,+++ G 5+9@ < ;*,9@82: use the expected cash flow in * year and the growth rate to find the expected cash flow in7 years0e know that C7 < C* G =*>g:?< *,9@8 G =*5+76:?< *,6+65@D30FNAN 301, Spring 2012, final, solutions2. Georgia owns a vending mahine that is worth "3#,000 and is e%peted to ma3e annual ash flows forever.*he ost of apital is 0.34.*he ne%t annual ash flow is e%peted in one &ear from toda& and all su!se.uent ash flows are e%peted to grow annuall& !& '.-4.+hat is the ash flow produed !& the vending mahine in ) &ears from toda& e%peted to !e,"5 ;*,8+7 =plus or minus ;*+:B. "1,00# ?plus or minus "10A/. "2,'(0 ?plus or minus "10A1. "2,13( ?plus or minus "10A2. None of the a!ove is within "10 of the orret answer%ime + * 2 9 ? 7 @ 6 8 ECashflow+ FF G=*5+76:F G=*5+76:2F G=*5+76:9F G=*5+76:?F G=*5+76:7F G=*5+76:@F G=*5+76:6EPresentvalue98,+++"pproach:*: find the expected cash flow in * year2: use the expected cash flow in * year and the growth rate to find the expected cash flow in@ years*: find the expected cash flow in * year%he cash flows reflect a growing perpetuityPV < C* - =r C g:PV < 98,+++r < 5+D9g < 5+7698,+++ < C* - =5+D9 C 5+76: < C* - 5+9@ C* < 98,+++ G 5+9@ < ;*,9@82: use the expected cash flow in * year and the growth rate to find the expected cash flow in@ years0e know that C@ < C* G =*>g:7< *,9@8 G =*5+76:7< *,8+?5D931FNAN 301, Spring 2012, final, solutions2. Georgia owns a vending mahine that is worth "3#,000 and is e%peted to ma3e annual ash flows forever.*he ost of apital is 0.34.*he ne%t annual ash flow is e%peted in one &ear from toda& and all su!se.uent ash flows are e%peted to grow annuall& !& '.-4.+hat is the ash flow produed !& the vending mahine in - &ears from toda& e%peted to !e,"5 ;*,D+8 =plus or minus ;*+:B. "2,01- ?plus or minus "10A/. "2,-#) ?plus or minus "10A1. "2,332 ?plus or minus "10A2. None of the a!ove is within "10 of the orret answer%ime + * 2 9 ? 7 @ 6 8 ECashflow+ FF G=*5+76:F G=*5+76:2F G=*5+76:9F G=*5+76:?F G=*5+76:7F G=*5+76:@F G=*5+76:6EPresentvalue98,+++"pproach:*: find the expected cash flow in * year2: use the expected cash flow in * year and the growth rate to find the expected cash flow in6 years*: find the expected cash flow in * year%he cash flows reflect a growing perpetuityPV < C* - =r C g:PV < 98,+++r < 5+D9g < 5+7698,+++ < C* - =5+D9 C 5+76: < C* - 5+9@ C* < 98,+++ G 5+9@ < ;*,9@82: use the expected cash flow in * year and the growth rate to find the expected cash flow in6 years0e know that C6 < C* G =*>g:@< *,9@8 G =*5+76:@< *,D+658*32FNAN 301, Spring 2012, final, solutions2. Georgia owns a vending mahine that is worth "3#,000 and is e%peted to ma3e annual ash flows forever.*he ost of apital is 0.34.*he ne%t annual ash flow is e%peted in one &ear from toda& and all su!se.uent ash flows are e%peted to grow annuall& !& '.-4.+hat is the ash flow produed !& the vending mahine in # &ears from toda& e%peted to !e,"5 ;2,+*6 =plus or minus ;*+:B. "2,132 ?plus or minus "10A/. "3,0() ?plus or minus "10A1. "2,'(0 ?plus or minus "10A2. None of the a!ove is within "10 of the orret answer%ime + * 2 9 ? 7 @ 6 8 ECashflow+ FF G=*5+76:F G=*5+76:2F G=*5+76:9F G=*5+76:?F G=*5+76:7F G=*5+76:@F G=*5+76:6EPresentvalue98,+++"pproach:*: find the expected cash flow in * year2: use the expected cash flow in * year and the growth rate to find the expected cash flow in8 years*: find the expected cash flow in * year%he cash flows reflect a growing perpetuityPV < C* - =r C g:PV < 98,+++r < 5+D9g < 5+7698,+++ < C* - =5+D9 C 5+76: < C* - 5+9@ C* < 98,+++ G 5+9@ < ;*,9@82: use the expected cash flow in * year and the growth rate to find the expected cash flow in8 years0e know that C8 < C* G =*>g:6< *,9@8 G =*5+76:6< 2,+*@57@33FNAN 301, Spring 2012, final, solutionsFind payment with PV annuity and an extra, interim cash flow3. 1at 5ust too3 out a loan from the !an3 for "13,000.6e plans to repa& this loan !& ma3ing a speial pa&ment to the !an3 of "(,000 in 3 &ears and !& also ma3ing e.ual, regular annual pa&ments of 7 per &ear for ' &ears.$f the interest rate on the loan is 12.3 perent per &ear and hema3es his first regular annual pa&ment in 1 &ear, then what is 7, 1at8s regular annual pa&ment,Assume that 1at ma3es two pa&ments in 3 &ears9 the e%tra pa&ment of "(,000 and the regular annual pa&ment of 7.A. An amount less than "2,-3'.00 or an amount greater than or e.ual to "2,03'.00B. An amount e.ual to or greater than "2,-3'.00 !ut less than "2,-#'.00/. An amount e.ual to or greater than "2,-#'.00 !ut less than "2,#3'.00)5 "n amount e(ual to or greater than ;2,8975++ #ut less than ;2,8875++2. An amount e.ual to or greater than "2,##'.00 !ut less than "2,03'.00%ime + * 2 9 ? 7Payment H + * 2 9 ? 7egular Pmt amt + F F F F F!xtra Pmt + + + '?,+++ + +Present value ';*9,+++%he annual payment can not #e found in one step on the financial calculator5"pproach*: Find the present value of the extra payment made in 9 years 2: Find the present value of the stream of regular payments9: Find the amount of each regular payment*: Find the present value of the extra payment made in 9 years %he present value of a ';?,+++ cash flow in 9 years at an annual rate of *259B is e(ual to:'?,+++-*5*299 < '2,82?59@2: Find the present value of the stream of regular payments%he present value of all cash flows associated with all loan payments is '*9,+++Af the '?,+++ cash flow in 9 years has a present value of '2,82?59@, then the present value of the 7 annual fixed cash flows that start in * year and end in 7 years is e(ual to:'*9,+++ C ='2,82?59@: < '*+,*675@?Find the payment associated with an annuity with a present value of '*+,*675@?, a total of 7 payments, and a periodic discount rate of *259B!,) mode!nter 7 *259 *+,*675@? +, AB P&% PV FVSolve for '2,8?95899: Find the amount of each regular payment%he regular annual payment would #e ;2,8?9589"nswer: );2,8?9589 is an amount e(ual to or greater than ;2,8975++ #ut less than ;2,8875++3(FNAN 301, Spring 2012, final, solutions3. 1at 5ust too3 out a loan from the !an3 for "13,000.6e plans to repa& this loan !& ma3ing a speial pa&ment to the !an3 of "(,000 in 2 &ears and !& also ma3ing e.ual, regular annual pa&ments of 7 per &ear for ' &ears.$f the interest rate on the loan is 12.3 perent per &ear and hema3es his first regular annual pa&ment in 1 &ear, then what is 7, 1at8s regular annual pa&ment,Assume that 1at ma3es two pa&ments in 2 &ears9 the e%tra pa&ment of "(,000 and the regular annual pa&ment of 7.A. An amount less than "2,-3'.00 or an amount greater than or e.ual to "2,03'.0045 "n amount e(ual to or greater than ;2,6975++ #ut less than ;2,6875++/. An amount e.ual to or greater than "2,-#'.00 !ut less than "2,#3'.001. An amount e.ual to or greater than "2,#3'.00 !ut less than "2,##'.002. An amount e.ual to or greater than "2,##'.00 !ut less than "2,03'.00%ime + * 2 9 ? 7Payment H + * 2 9 ? 7egular Pmt amt + F F F F F!xtra Pmt + + '?,+++ + + +Present value ';*9,+++%he annual payment can not #e found in one step on the financial calculator5"pproach*: Find the present value of the extra payment made in 2 years 2: Find the present value of the stream of regular payments9: Find the amount of each regular payment*: Find the present value of the extra payment made in 2 years %he present value of a ';?,+++ cash flow in 2 years at an annual rate of *259B is e(ual to:'?,+++-*5*292 < '9,*6*56@2: Find the present value of the stream of regular payments%he present value of all cash flows associated with all loan payments is '*9,+++Af the '?,+++ cash flow in 2 years has a present value of '9,*6*56@, then the present value of the 7 annual fixed cash flows that start in * year and end in 7 years is e(ual to:'*9,+++ C ='9,*6*56@: < 'D,82852?Find the payment associated with an annuity with a present value of 'D,82852?, a total of 7 payments,and a periodic discount rate of *259B!,) mode!nter 7 *259 D,82852? +, AB P&% PV FVSolve for '2,6?@56?9: Find the amount of each regular payment%he regular annual payment would #e ;2,6?@56?"nswer: 4;2,6?@56? is an amount e(ual to or greater than ;2,6975++ #ut less than ;2,6875++3'FNAN 301, Spring 2012, final, solutions3. 1at 5ust too3 out a loan from the !an3 for "13,000.6e plans to repa& this loan !& ma3ing a speial pa&ment to the !an3 of "(,000 in 3 &ears and !& also ma3ing e.ual, regular annual pa&ments of 7 per &ear for ' &ears.$f the interest rate on the loan is 13.2 perent per &ear and hema3es his first regular annual pa&ment in 1 &ear, then what is 7, 1at8s regular annual pa&ment,Assume that 1at ma3es two pa&ments in 3 &ears9 the e%tra pa&ment of "(,000 and the regular annual pa&ment of 7.A. An amount less than "2,-3'.00 or an amount greater than or e.ual to "2,03'.00B. An amount e.ual to or greater than "2,-3'.00 !ut less than "2,-#'.00/. An amount e.ual to or greater than "2,-#'.00 !ut less than "2,#3'.001. An amount e.ual to or greater than "2,#3'.00 !ut less than "2,##'.00!5 "n amount e(ual to or greater than ;2,8875++ #ut less than ;2,D975++%ime + * 2 9 ? 7Payment H + * 2 9 ? 7egular Pmt amt + F F F F F!xtra Pmt + + + '?,+++ + +Present value ';*9,+++%he annual payment can not #e found in one step on the financial calculator5"pproach*: Find the present value of the extra payment made in 9 years 2: Find the present value of the stream of regular payments9: Find the amount of each regular payment*: Find the present value of the extra payment made in 9 years %he present value of a ';?,+++ cash flow in 9 years at an annual rate of *952B is e(ual to:'?,+++-*5*929 < '2,6765792: Find the present value of the stream of regular payments%he present value of all cash flows associated with all loan payments is '*9,+++Af the '?,+++ cash flow in 9 years has a present value of '2,676579, then the present value of the 7 annual fixed cash flows that start in * year and end in 7 years is e(ual to:'*9,+++ C ='2,676579: < '*+,2?25?6Find the payment associated with an annuity with a present value of '*+,2?25?6, a total of 7 payments, and a periodic discount rate of *952B!,) mode!nter 7 *952 *+,2?25?6 +, AB P&% PV FVSolve for '2,D2@59*9: Find the amount of each regular payment%he regular annual payment would #e ;2,D2@59*"nswer: !;2,D2@59* is an amount e(ual to or greater than ;2,8875++ #ut less than ;2,D975++3)FNAN 301, Spring 2012, final, solutions3. 1at 5ust too3 out a loan from the !an3 for "13,000.6e plans to repa& this loan !& ma3ing a speial pa&ment to the !an3 of "(,000 in 2 &ears and !& also ma3ing e.ual, regular annual pa&ments of 7 per &ear for ' &ears.$f the interest rate on the loan is 13.2 perent per &ear and hema3es his first regular annual pa&ment in 1 &ear, then what is 7, 1at8s regular annual pa&ment,Assume that 1at ma3es two pa&ments in 2 &ears9 the e%tra pa&ment of "(,000 and the regular annual pa&ment of 7.A. An amount less than "2,-3'.00 or an amount greater than or e.ual to "2,03'.00B. An amount e.ual to or greater than "2,-3'.00 !ut less than "2,-#'.00C5 "n amount e(ual to or greater than ;2,6875++ #ut less than ;2,8975++1. An amount e.ual to or greater than "2,#3'.00 !ut less than "2,##'.002. An amount e.ual to or greater than "2,##'.00 !ut less than "2,03'.00%ime + * 2 9 ? 7Payment H + * 2 9 ? 7egular Pmt amt + F F F F F!xtra Pmt + + '?,+++ + + +Present value ';*9,+++%he annual payment can not #e found in one step on the financial calculator5"pproach*: Find the present value of the extra payment made in 2 years 2: Find the present value of the stream of regular payments9: Find the amount of each regular payment*: Find the present value of the extra payment made in 2 years %he present value of a ';?,+++ cash flow in 2 years at an annual rate of *952B is e(ual to:'?,+++-*5*922 < '9,*2*5792: Find the present value of the stream of regular payments%he present value of all cash flows associated with all loan payments is '*9,+++Af the '?,+++ cash flow in 2 years has a present value of '9,*2*579, then the present value of the 7 annual fixed cash flows that start in * year and end in 7 years is e(ual to:'*9,+++ C ='9,*2*579: < 'D,8685?6Find the payment associated with an annuity with a present value of 'D,8685?6, a total of 7 payments,and a periodic discount rate of *952B!,) mode!nter 7 *952 D,8685?6 +, AB P&% PV FVSolve for '2,82259*9: Find the amount of each regular payment%he regular annual payment would #e ;2,82259*"nswer: C;2,82259* is an amount e(ual to or greater than ;2,6875++ #ut less than ;2,8975++3-FNAN 301, Spring 2012, final, solutionsFind annuity due value and expected return from fixed perpetuity to compare value & risk(. $nvestment A has an e%peted return of 0.- perent and is e%peted to pa& "-' per &ear for a finite num!er of &ears suh that its first annual pa&ment is e%peted later toda& and its last annual pa&ment is e%peted in ' &ears from toda&.$nvestment B is e%peted to pa& "31 per &ear forever, is e%peted to ma3e its first pa&ment in 1 &ear from toda&, and has a value of "32'.Based on the given information, whih one of the following assertions is true,"5 Anvestment " is more valua#le than investment 4 and investment " has more risk than investment 4B. $nvestment A is more valua!le than investment B and investment B has more ris3 than investment A/. $nvestment B is more valua!le than investment A and investment A has more ris3 than investment B1. $nvestment B is more valua!le than investment A and investment B has more ris3 than investment A2. $nvestment A is e.uall& as valua!le as investment B or investment A has the same amount of ris3 as investment B%o answer this (uestion, find the value of each investment and find the expected return of each investment, since higher expected return is associated with higher riskValue of each investmentValue of " is the value of an annuity due with @ payments, a discount rate of D56B, and a regular cash flow of ;67%ime + * 2 9 ? 7Pmt H * 2 9 ? 7 @CF 67 67 67 67 67 674!3A, &ode!nter @ D56 67 +, AB PV P&% FVSolve for '9@*57+Value of " < ;9@*57+Value of 4 is given as ;927Value of A > value of Bisk of each investment%o compare the risk of the investments, compare their expected returns, since higher risk is associated with higher expected return!xpected return for investment " is given as D56BAnvestment 4 is a fixed perpetuity, so its expected return < r < C - PV C < 9*PV < 927r < 9* - 927 < 5+D7? < D57?B!xpected return for 4 < D57?B!xpected return for " < D56B I D57?B < expected return for 4So A has more risk than BPutting it all together: Value of " I value of 4 and " has more risk than 4 3#FNAN 301, Spring 2012, final, solutions(. $nvestment A has an e%peted return of 0.- perent and is e%peted to pa& "-' per &ear for a finite num!er of &ears suh that its first annual pa&ment is e%peted later toda& and its last annual pa&ment is e%peted in ) &ears from toda&.$nvestment B is e%peted to pa& "3- per &ear forever, is e%peted to ma3e its first pa&ment in 1 &ear from toda&, and has a value of "3-'.Based on the given information, whih one of the following assertions is true,A. $nvestment A is more valua!le than investment B and investment A has more ris3 than investment B45 Anvestment " is more valua#le than investment 4 and investment 4 has more risk than investment "/. $nvestment B is more valua!le than investment A and investment A has more ris3 than investment B1. $nvestment B is more valua!le than investment A and investment B has more ris3 than investment A2. $nvestment A is e.uall& as valua!le as investment B or investment A has the same amount of ris3 as investment B%o answer this (uestion, find the value of each investment and find the expected return of each investment, since higher expected return is associated with higher riskValue of each investmentValue of " is the value of an annuity due with 6 payments, a discount rate of D56B, and a regular cash flow of ;67%ime + * 2 9 ? 7 @Pmt H * 2 9 ? 7 @ 6CF 67 67 67 67 67 67 674!3A, &ode!nter 6 D56 67 +, AB PV P&% FVSolve for '?+?57?Value of " < ;?+?57?Value of 4 is given as ;967Value of A > value of Bisk of each investment%o compare the risk of the investments, compare their expected returns, since higher risk is associated with higher expected return!xpected return for investment " is given as D56BAnvestment 4 is a fixed perpetuity, so its expected return < r < C - PV C < 96PV < 967r < 96 - 967 < 5+D86 < D586B!xpected return for 4 < D586B!xpected return for 4 < D586B I D56B < expected return for "So B has more risk than APutting it all together: Value of " I value of 4 and 4 has more risk than " 30FNAN 301, Spring 2012, final, solutions(. $nvestment A has an e%peted return of -.0 perent and is e%peted to pa& "-' per &ear for a finite num!er of &ears suh that its first annual pa&ment is e%peted later toda& and its last annual pa&ment is e%peted in ' &ears from toda&.$nvestment B is e%peted to pa& "20 per &ear forever, is e%peted to ma3e its first pa&ment in 1 &ear from toda&, and has a value of "3''.Based on the given information, whih one of the following assertions is true,A. $nvestment B is more valua!le than investment A and investment B has more ris3 than investment AB. $nvestment B is more valua!le than investment A and investment A has more ris3 than investment BC5 Anvestment " is more valua#le than investment 4 and investment 4 has more risk than investment "1. $nvestment A is more valua!le than investment B and investment A has more ris3 than investment B2. $nvestment A is e.uall& as valua!le as investment B or investment A has the same amount of ris3 as investment B%o answer this (uestion, find the value of each investment and find the expected return of each investment, since higher expected return is associated with higher riskValue of each investmentValue of " is the value of an annuity due with @ payments, a discount rate of 65DB, and a regular cash flow of ;67%ime + * 2 9 ? 7Pmt H * 2 9 ? 7 @CF 67 67 67 67 67 674!3A, &ode!nter @ 65D 67 +, AB PV P&% FVSolve for '96752?Value of " < ;96752?Value of 4 is given as ;977Value of A > value of Bisk of each investment%o compare the risk of the investments, compare their expected returns, since higher risk is associated with higher expected return!xpected return for investment " is given as 65DBAnvestment 4 is a fixed perpetuity, so its expected return < r < C - PV C < 2DPV < 977r < 2D - 977 < 5+D7? < 85*6B!xpected return for 4 < 85*6B!xpected return for 4 < 85*6B I 65DB < expected return for "So B has more risk than APutting it all together: Value of " I value of 4 and 4 has more risk than " (0FNAN 301, Spring 2012, final, solutions(. $nvestment A has an e%peted return of -.0 perent and is e%peted to pa& "-' per &ear for a finite num!er of &ears suh that its first annual pa&ment is e%peted later toda& and its last annual pa&ment is e%peted in ) &ears from toda&.$nvestment B is e%peted to pa& "30 per &ear forever, is e%peted to ma3e its first pa&ment in 1 &ear from toda&, and has a value of "3#'.Based on the given information, whih one of the following assertions is true,A. $nvestment B is more valua!le than investment A and investment B has more ris3 than investment AB. $nvestment B is more valua!le than investment A and investment A has more ris3 than investment B/. $nvestment A is more valua!le than investment B and investment B has more ris3 than investment A)5 Anvestment " is more valua#le than investment 4 and investment " has more risk than investment 42. $nvestment A is e.uall& as valua!le as investment B or investment A has the same amount of ris3 as investment B%o answer this (uestion, find the value of each investment and find the expected return of each investment, since higher expected return is associated with higher riskValue of each investmentValue of " is the value of an annuity due with 6 payments, a discount rate of 65DB, and a regular cash flow of ;67%ime + * 2 9 ? 7 @Pmt H * 2 9 ? 7 @ 6CF 67 67 67 67 67 67 674!3A, &ode!nter 6 65D 67 +, AB PV P&% FVSolve for '?22566Value of " < ;?22566Value of 4 is given as ;987Value of A > value of Bisk of each investment%o compare the risk of the investments, compare their expected returns, since higher risk is associated with higher expected return!xpected return for investment " is given as 65DBAnvestment 4 is a fixed perpetuity, so its expected return < r < C - PV C < 9+PV < 987r < 9+ - 987 < 5+66D < 656DB!xpected return for 4 < 656DB!xpected return for " < 65DB I 656DB < expected return for 4So A has more risk than BPutting it all together: Value of " I value of 4 and " has more risk than 4 (1FNAN 301, Spring 2012, final, solutionsFind missing CF associated with future value of multiple cash flows'. $f Georgia e%pets to invest "13,(00 in 1 &ear from toda& in an aount that is e%peted to earn'.1 perent per &ear, and she e%pets to ma3e another investment in the same aount in ( &ears from toda&, then how muh mone& does Georgia e%pet to invest in ( &ears from toda& if she e%pets to have "3#,000 in her aount in ) &ears from toda&,A. An amount less than "1',000 or an amount greater than or e.ual to "10,000B. An amount e.ual to or greater than "1',000 !ut less than "1),000/. An amount e.ual to or greater than "1),000 !ut less than "1-,0001. An amount e.ual to or greater than "1-,000 !ut less than "1#,000!5 "n amount e(ual to or greater than ;*8,+++ #ut less than ;*D,+++%he future value of multiple cash flows at different points in time is the sum of the future values of each individual cash flow, so find the future value of the investment made in * year from today, thenfind the future value of the investment made in ? years from today, and then find the actual amountof the investment made in ? years from today5%ime + * 2 9 ? 7 @Anvest *9,?++ FFuture value 98,+++Future value of the investment made in * year from todayAn general, FVt < Ck G =*>r:t'kAn this case, r < 5+7*J t < @J k < *J t C k < 7J Ck < C* < *9,?++JFV@ < C* G =*>r:7< *9,?++ G =*5+7*:7 < *6,*8?&ode is not relevant, since P&% < +!nter 7 75* '*9,?++ +, AB PV P&% FVSolve for *6,*8?Future value of investment made in ? years from todayAf 3eorgia expects to have ;98,+++ in her account in @ years"nd if the investment made in * year from today is expected to #e worth ;*6,*8? in @ years%hen the investment made in ? years from today will #e worth ;98,+++ C ;*6,*8? < ;2+,8*@ in @ yearsAnvestment made in ? years from todayAn general, FVt < Ck G =*>r:t'kAn this case for the investment made in ? years from today, FV@ < C? G =*>r:@'?< C? G =*>r:2 0e know FV@ < 2+,8*@J r < 5+7*J t < @J k < ?J and t C k < 2So 2+,8*@ < C? G =*5+7*:2So C? < 2+,8*@ - =*5+7*:2 < ;*8,8?7&ode is not relevant, since P&% < +!nter 2 75* + 2+,8*@, AB PV P&% FVSolve for '*8,8?7"nswer: !;*8,8?7 is an amount e(ual to or greater than ;*8,+++ #ut less than ;*D,+++(2FNAN 301, Spring 2012, final, solutions'. $f Georgia e%pets to invest "1',200 in 1 &ear from toda& in an aount that is e%peted to earn'.1 perent per &ear, and she e%pets to ma3e another investment in the same aount in ( &ears from toda&, then how muh mone& does Georgia e%pet to invest in ( &ears from toda& if she e%pets to have "3#,000 in her aount in ) &ears from toda&,A. An amount less than "1',000 or an amount greater than or e.ual to "10,000B. An amount e.ual to or greater than "1',000 !ut less than "1),000C5 "n amount e(ual to or greater than ;*@,+++ #ut less than ;*6,+++1. An amount e.ual to or greater than "1-,000 !ut less than "1#,0002. An amount e.ual to or greater than "1#,000 !ut less than "10,000%he future value of multiple cash flows at different points in time is the sum of the future values of each individual cash flow, so find the future value of the investment made in * year from today, thenfind the future value of the investment made in ? years from today, and then find the actual amountof the investment made in ? years from today5%ime + * 2 9 ? 7 @Anvest *7,2++ FFuture value 98,+++Future value of the investment made in * year from todayAn general, FVt < Ck G =*>r:t'kAn this case, r < 5+7*J t < @J k < *J t C k < 7J Ck < C* < *7,2++JFV@ < C* G =*>r:7< *7,2++ G =*5+7*:7 < *D,?D2&ode is not relevant, since P&% < +!nter 7 75* '*7,2++ +, AB PV P&% FVSolve for *D,?D2Future value of investment made in ? years from todayAf 3eorgia expects to have ;98,+++ in her account in @ years"nd if the investment made in * year from today is expected to #e worth ;*D,?D2 in @ years%hen the investment made in ? years from today will #e worth ;98,+++ C ;*D,?D2 < ;*8,7+8 in @ yearsAnvestment made in ? years from todayAn general, FVt < Ck G =*>r:t'kAn this case for the investment made in ? years from today, FV@ < C? G =*>r:@'?< C? G =*>r:2 0e know FV@ < *8,7+8J r < 5+7*J t < @J k < ?J and t C k < 2So *8,7+8 < C? G =*5+7*:2So C? < *8,7+8 - =*5+7*:2 < ;*@,677&ode is not relevant, since P&% < +!nter 2 75* + *8,7+8, AB PV P&% FVSolve for '*@,677"nswer: C;*@,677 is an amount e(ual to or greater than ;*@,+++ #ut less than ;*6,+++(3FNAN 301, Spring 2012, final, solutions'. $f Georgia e%pets to invest "13,(00 in 1 &ear from toda& in an aount that is e%peted to earn'.1 perent per &ear, and she e%pets to ma3e another investment in the same aount in 2 &ears from toda&, then how muh mone& does Georgia e%pet to invest in 2 &ears from toda& if she e%pets to have "3#,000 in her aount in ) &ears from toda&,A. An amount less than "1',000 or an amount greater than or e.ual to "10,000B. An amount e.ual to or greater than "1',000 !ut less than "1),000/. An amount e.ual to or greater than "1),000 !ut less than "1-,000)5 "n amount e(ual to or greater than ;*6,+++ #ut less than ;*8,+++2. An amount e.ual to or greater than "1#,000 !ut less than "10,000%he future value of multiple cash flows at different points in time is the sum of the future values of each individual cash flow, so find the future value of the investment made in * year from today, thenfind the future value of the investment made in 2 years from today, and then find the actual amountof the investment made in 2 years from today5%ime + * 2 9 ? 7 @Anvest *9,?++ FFuture value 98,+++Future value of the investment made in * year from todayAn general, FVt < Ck G =*>r:t'kAn this case, r < 5+7*J t < @J k < *J t C k < 7J Ck < C* < *9,?++JFV@ < C* G =*>r:7< *9,?++ G =*5+7*:7 < *6,*8?&ode is not relevant, since P&% < +!nter 7 75* '*9,?++ +, AB PV P&% FVSolve for *6,*8?Future value of investment made in 2 years from todayAf 3eorgia expects to have ;98,+++ in her account in @ years"nd if the investment made in * year from today is expected to #e worth ;*6,*8? in @ years%hen the investment made in 2 years from today will #e worth ;98,+++ C ;*6,*8? < ;2+,8*@ in @ yearsAnvestment made in 2 years from todayAn general, FVt < Ck G =*>r:t'kAn this case for the investment made in 2 years from today, FV@ < C2 G =*>r:@'2< C? G =*>r:? 0e know FV@ < 2+,8*@J r < 5+7*J t < @J k < 2J and t C k < ?So 2+,8*@ < C2 G =*5+7*:?So C2 < 2+,8*@ - =*5+7*:? < ;*6,+@+&ode is not relevant, since P&% < +!nter ? 75* + 2+,8*@, AB PV P&% FVSolve for '*6,+@+"nswer: );*6,+@+ is an amount e(ual to or greater than ;*6,+++ #ut less than ;*8,+++((FNAN 301, Spring 2012, final, solutions'. $f Georgia e%pets to invest "1',200 in 1 &ear from toda& in an aount that is e%peted to earn'.1 perent per &ear, and she e%pets to ma3e another investment in the same aount in 2 &ears from toda&, then how muh mone& does Georgia e%pet to invest in 2 &ears from toda& if she e%pets to have "3#,000 in her aount in ) &ears from toda&,A. An amount less than "1',000 or an amount greater than or e.ual to "10,00045 "n amount e(ual to or greater than ;*7,+++ #ut less than ;*@,+++/. An amount e.ual to or greater than "1),000 !ut less than "1-,0001. An amount e.ual to or greater than "1-,000 !ut less than "1#,0002. An amount e.ual to or greater than "1#,000 !ut less than "10,000%he future value of multiple cash flows at different points in time is the sum of the future values of each individual cash flow, so find the future value of the investment made in * year from today, thenfind the future value of the investment made in 2 years from today, and then find the actual amountof the investment made in 2 years from today5%ime + * 2 9 ? 7 @Anvest *7,2++ FFuture value 98,+++Future value of the investment made in * year from todayAn general, FVt < Ck G =*>r:t'kAn this case, r < 5+7*J t < @J k < *J t C k < 7J Ck < C* < *7,2++JFV@ < C* G =*>r:7< *7,2++ G =*5+7*:7 < *D,?D2&ode is not relevant, since P&% < +!nter 7 75* '*7,2++ +, AB PV P&% FVSolve for *D,?D2Future value of investment made in 2 years from todayAf 3eorgia expects to have ;98,+++ in her account in @ years"nd if the investment made in * year from today is expected to #e worth ;*D,?D2 in @ years%hen the investment made in 2 years from today will #e worth ;98,+++ C ;*D,?D2 < ;*8,7+8 in @ yearsAnvestment made in 2 years from todayAn general, FVt < Ck G =*>r:t'kAn this case for the investment made in 2 years from today, FV@ < C2 G =*>r:@'2< C? G =*>r:? 0e know FV@ < *8,7+8J r < 5+7*J t < @J k < 2J and t C k < ?So *8,7+8 < C2 G =*5+7*:?So C2 < *8,7+8 - =*5+7*:? < ;*7,*@D&ode is not relevant, since P&% < +!nter ? 75* + *8,7+8, AB PV P&% FVSolve for '*7,*@D"nswer: 4;*7,*@D is an amount e(ual to or greater than ;*7,+++ #ut less than ;*@,+++('FNAN 301, Spring 2012, final, solutionsSave with annuity and then give a growing perpetuity: what is first perpetuity CF). Georgia wants to reate a sholarship fund !& ma3ing annual savings donations to the fund for several &ears !efore the fund starts ma3ing annual sholarship pa&ments forever.She plans to save "(',000 per &ear in a trust fund for ( &ears.6er first savings donation to the trust fund is e%peted in 1 &ear from toda&.+hat is the e%peted amount of the sholarship pa&ment that the trust fund will ma3e in ' &ears from toda& if the fund is e%peted to have a return of #.3 perent per &ear, ma3e annual sholarship pa&ments that grow annuall& !& (.( perent forever, and ma3e its first annual sholarship pa&ment in ' &ears from toda&,"5 ;6,D?9 =plus or minus ;*+:B. "1),00' ?plus or minus "10A/. "#,203 ?plus or minus "10A1. "',--( ?plus or minus "10A2. None of the a!ove is within "10 of the orret answerStep *: find how much money will #e in the trust fund in ? years =which is one year #efore the scholarship payments start:Step 2: find the amount of the payment that can #e produced in 7 years %ime period + * 2 9 ? 7 @ 6 ESavings H * 2 9 ?Savings amount ?7k ?7k ?7k ?7kFuture value F"Present value F")onation H * 2 9 E)onation amount F FG*5+2 FG*5+22EStep *: find how much money will #e in the trust fund in ? years =denoted #y F":Af the first savings donation is made in * year and the last savings donation is made in ? years, then the amount of money accumulated in ? years can #e found #y finding the future value of a ?'year annuity, since the first payment will #e made in * year, there will #e ? expected payments, and all expected payments will #e e(ual5 !,) mode!nter ? 859 + '?7,+++, AB PV P&% FVSolve for 2+9,@6@An ? years, the scholarship fund is expected to have ;2+9,@6@Step 2: find the amount of the payment that can #e produced in 7 years %he first annual scholarship payment is expected * year after the reference point, when the fund is expected to have ;2+9,@6@51ne year after the reference point of ? years is in 7 years from today and we want to know the payment that can #e made at that time5%o find how much the scholarship payment in 7 years from today can #e for, we need to find the first payment associated with a growing perpetuity with a present value of ;2+9,@6@, a growth rate of ?5?B, and a discount rate of 859B5PV? < C7 - =r C g: or KresettingL the timeline gets PV+ < C* - =r C g:So ;2+9,@6@ < C7 - =5+89 C 5+??:< C7 - 5+9DSo C7 < ;2+9,@6@ G 5+9D < ;6,D?9%he scholarship fund is expected to make a payment of ;6,D?9 in 7 years from today"nswers may differ slightly due to rounding()FNAN 301, Spring 2012, final, solutions). Georgia wants to reate a sholarship fund !& ma3ing annual savings donations to the fund for several &ears !efore the fund starts ma3ing annual sholarship pa&ments forever.She plans to save "(',000 per &ear in a trust fund for ( &ears.6er first savings donation to the trust fund is e%peted in 1 &ear from toda&.+hat is the e%peted amount of the sholarship pa&ment that the trust fund will ma3e in ' &ears from toda& if the fund is e%peted to have a return of #.3 perent per &ear, ma3e annual sholarship pa&ments that grow annuall& !& 3.0 perent forever, and ma3e its first annual sholarship pa&ment in ' &ears from toda&,"5 ;8,D@2 =plus or minus ;*+:B. "1),00' ?plus or minus "10A/. "0,311 ?plus or minus "10A1. "),'1( ?plus or minus "10A2. None of the a!ove is within "10 of the orret answerStep *: find how much money will #e in the trust fund in ? years =which is one year #efore the scholarship payments start:Step 2: find the amount of the payment that can #e produced in 7 years %ime period + * 2 9 ? 7 @ 6 ESavings H * 2 9 ?Savings amount ?7k ?7k ?7k ?7kFuture value F"Present value F")onation H * 2 9 E)onation amount F FG*5+2 FG*5+22EStep *: find how much money will #e in the trust fund in ? years =denoted #y F":Af the first savings donation is made in * year and the last savings donation is made in ? years, then the amount of money accumulated in ? years can #e found #y finding the future value of a ?'year annuity, since the first payment will #e made in * year, there will #e ? expected payments, and all expected payments will #e e(ual5 !,) mode!nter ? 859 + '?7,+++, AB PV P&% FVSolve for 2+9,@6@An ? years, the scholarship fund is expected to have ;2+9,@6@Step 2: find the amount of the payment that can #e produced in 7 years %he first annual scholarship payment is expected * year after the reference point, when the fund is expected to have ;2+9,@6@51ne year after the reference point of ? years is in 7 years from today and we want to know the payment that can #e made at that time5%o find how much the scholarship payment in 7 years from today can #e for, we need to find the first payment associated with a growing perpetuity with a present value of ;2+9,@6@, a growth rate of 95DB, and a discount rate of 859B5PV? < C7 - =r C g: or KresettingL the timeline gets PV+ < C* - =r C g:So ;2+9,@6@ < C7 - =5+89 C 5+9D:< C7 - 5+??So C7 < ;2+9,@6@ G 5+?? < ;8,D@2%he scholarship fund is expected to make a payment of ;8,D@2 in 7 years from today"nswers may differ slightly due to rounding(-FNAN 301, Spring 2012, final, solutions). Georgia wants to reate a sholarship fund !& ma3ing annual savings donations to the fund for several &ears !efore the fund starts ma3ing annual sholarship pa&ments forever.She plans to save "'(,000 per &ear in a trust fund for ( &ears.6er first savings donation to the trust fund is e%peted in 1 &ear from toda&.+hat is the e%peted amount of the sholarship pa&ment that the trust fund will ma3e in ' &ears from toda& if the fund is e%peted to have a return of #.3 perent per &ear, ma3e annual sholarship pa&ments that grow annuall& !& (.( perent forever, and ma3e its first annual sholarship pa&ment in ' &ears from toda&,"5 ;D,792 =plus or minus ;*+:B. "20,2#) ?plus or minus "10A/. "0,0'1 ?plus or minus "10A1. "),020 ?plus or minus "10A2. None of the a!ove is within "10 of the orret answerStep *: find how much money will #e in the trust fund in ? years =which is one year #efore the scholarship payments start:Step 2: find the amount of the payment that can #e produced in 7 years %ime period + * 2 9 ? 7 @ 6 ESavings H * 2 9 ?Savings amount 7?k 7?k 7?k 7?kFuture value F"Present value F")onation H * 2 9 E)onation amount F FG*5+2 FG*5+22EStep *: find how much money will #e in the trust fund in ? years =denoted #y F":Af the first savings donation is made in * year and the last savings donation is made in ? years, then the amount of money accumulated in ? years can #e found #y finding the future value of a ?'year annuity, since the first payment will #e made in * year, there will #e ? expected payments, and all expected payments will #e e(ual5 !,) mode!nter ? 859 + '7?,+++, AB PV P&% FVSolve for 2??,?**An ? years, the scholarship fund is expected to have ;2??,?**Step 2: find the amount of the payment that can #e produced in 7 years %he first annual scholarship payment is expected * year after the reference point, when the fund is expected to have ;2??,?**51ne year after the reference point of ? years is in 7 years from today and we want to know the payment that can #e made at that time5%o find how much the scholarship payment in 7 years from today can #e for, we need to find the first payment associated with a growing perpetuity with a present value of ;2??,?**, a growth rate of ?5?B, and a discount rate of 859B5PV? < C7 - =r C g: or KresettingL the timeline gets PV+ < C* - =r C g:So ;2??,?** < C7 - =5+89 C 5+??:< C7 - 5+9DSo C7 < ;2??,?** G 5+9D < ;D,792%he scholarship fund is expected to make a payment of ;D,792 in 7 years from today"nswers may differ slightly due to rounding(#FNAN 301, Spring 2012, final, solutions). Georgia wants to reate a sholarship fund !& ma3ing annual savings donations to the fund for several &ears !efore the fund starts ma3ing annual sholarship pa&ments forever.She plans to save "'(,000 per &ear in a trust fund for ( &ears.6er first savings donation to the trust fund is e%peted in 1 &ear from toda&.+hat is the e%peted amount of the sholarship pa&ment that the trust fund will ma3e in ' &ears from toda& if the fund is e%peted to have a return of #.3 perent per &ear, ma3e annual sholarship pa&ments that grow annuall& !& 3.0 perent forever, and ma3e its first annual sholarship pa&ment in ' &ears from toda&,"5 ;*+,67? =plus or minus ;*+:B. "20,2#) ?plus or minus "10A/. "11,1-3 ?plus or minus "10A1. "-,#1- ?plus or minus "10A2. None of the a!ove is within "10 of the orret answerStep *: find how much money will #e in the trust fund in ? years =which is one year #efore the scholarship payments start:Step 2: find the amount of the payment that can #e produced in 7 years %ime period + * 2 9 ? 7 @ 6 ESavings H * 2 9 ?Savings amount 7?k 7?k 7?k 7?kFuture value F"Present value F")onation H * 2 9 E)onation amount F FG*5+2 FG*5+22EStep *: find how much money will #e in the trust fund in ? years =denoted #y F":Af the first savings donation is made in * year and the last savings donation is made in ? years, then the amount of money accumulated in ? years can #e found #y finding the future value of a ?'year annuity, since the first payment will #e made in * year, there will #e ? expected payments, and all expected payments will #e e(ual5 !,) mode!nter ? 859 + '7?,+++, AB PV P&% FVSolve for 2??,?**An ? years, the scholarship fund is expected to have ;2??,?**Step 2: find the amount of the payment that can #e produced in 7 years %he first annual scholarship payment is expected * year after the reference point, when the fund is expected to have ;2??,?**51ne year after the reference point of ? years is in 7 years from today and we want to know the payment that can #e made at that time5%o find how much the scholarship payment in 7 years from today can #e for, we need to find the first payment associated with a growing perpetuity with a present value of ;2??,?**, a growth rate of 95DB, and a discount rate of 859B5PV? < C7 - =r C g: or KresettingL the timeline gets PV+ < C* - =r C g:So ;2??,?** < C7 - =5+89 C 5+9D:< C7 - 5+??So C7 < ;2??,?** G 5+?? < ;*+,67?%he scholarship fund is expected to make a payment of ;*+,67? in 7 years from today"nswers may differ slightly due to rounding(0FNAN 301, Spring 2012, final, solutionsFindthen !" from FV and payments-. 1at is planning to save "(- eah month for ( &ears.6e plans to ma3e his first ontri!ution to his aount in 1 month from toda&.$f he has "000 in his aount toda& and e%pets to have "3,0(0.#3 in his aount in ( &ears from toda&, immediatel& after ma3ing his last pa&ment, then what is the 2A: that he e%pets to earn on his aount,A. A rate less than #.004 or a rate greater than or e.ual to 0.)04B. A rate e.ual to or greater than #.004 !ut less than #.(04/. A rate e.ual to or greater than #.(04 !ut less than #.#04)5 " rate e(ual to or greater than 858+B #ut less than D52+B2. A rate e.ual to or greater than 0.204 !ut less than 0.)04%o solve:*: Find the monthly rate that he expects to earn2: Find the !" associated with the monthly rate from step **: Find the monthly rate that he expects to earnAf he makes payments for ? years, then he will make ? G *2 < ?8 payments, so , < ?8Af he has ;D++ in his account today, then PV < 'D++!,) &ode!nter ?8 'D++ '?6 9,D?+589, AB PV P&% FVSolve for +56*+56* percent is the monthly rate associated with )atMs savings2: Find the !" associated with the monthly rate from step *!" < N=*>periodic rate:num#er of periods in a yearO C * < N=*>monthly rate:num#er of months in a yearO C *< N=*5++6*:*2O C * < *5+88@ C *< +5+88@ < 858@B"nswer: )858@B is a rate e(ual to or greater than 858+B #ut less than D52+B'0FNAN 301, Spring 2012, final, solutions-. 1at is planning to save "(- eah month for ( &ears.6e plans to ma3e his first ontri!ution to his aount in 1 month from toda&.$f he has "000 in his aount toda& and e%pets to have "3,0-#.0( in his aount in ( &ears from toda&, immediatel& after ma3ing his last pa&ment, then what is the 2A: that he e%pets to earn on his aount,A. A rate less than #.004 or a rate greater than or e.ual to 0.)04B. A rate e.ual to or greater than #.004 !ut less than #.(04/. A rate e.ual to or greater than #.(04 !ut less than #.#041. A rate e.ual to or greater than #.#04 !ut less than 0.204!5 " rate e(ual to or greater than D52+B #ut less than D5@+B%o solve:*: Find the monthly rate that he expects to earn2: Find the !" associated with the monthly rate from step **: Find the monthly rate that he expects to earnAf he makes payments for ? years, then he will make ? G *2 < ?8 payments, so , < ?8Af he has ;D++ in his account today, then PV < 'D++!,) &ode!nter ?8 'D++ '?6 9,D685D?, AB PV P&% FVSolve for +56?+56? percent is the monthly rate associated with )atMs savings2: Find the !" associated with the monthly rate from step *!" < N=*>periodic rate:num#er of periods in a yearO C * < N=*>monthly rate:num#er of months in a yearO C *< N=*5++6?:*2O C * < *5+D27 C *< +5+D27 < D527B"nswer: !D527B is a rate e(ual to or greater than D52+B #ut less than D5@+B'1FNAN 301, Spring 2012, final, solutions-. 1at is planning to save "(- eah month for ( &ears.6e plans to ma3e his first ontri!ution to his aount in 1 month from toda&.$f he has "000 in his aount toda& and e%pets to have "3,003.1' in his aount in ( &ears from toda&, immediatel& after ma3ing his last pa&ment, then what is the 2A: that he e%pets to earn on his aount,A. A rate less than #.004 or a rate greater than or e.ual to 0.)04B. A rate e.ual to or greater than #.004 !ut less than #.(04C5 " rate e(ual to or greater than 85?+B #ut less than 858+B1. A rate e.ual to or greater than #.#04 !ut less than 0.2042. A rate e.ual to or greater than 0.204 !ut less than 0.)04%o solve:*: Find the monthly rate that he expects to earn2: Find the !" associated with the monthly rate from step **: Find the monthly rate that he expects to earnAf he makes payments for ? years, then he will make ? G *2 < ?8 payments, so , < ?8Af he has ;D++ in his account today, then PV < 'D++!,) &ode!nter ?8 'D++ '?6 9,D+95*7, AB PV P&% FVSolve for +5@8+5@8 percent is the monthly rate associated with )atMs savings2: Find the !" associated with the monthly rate from step *!" < N=*>periodic rate:num#er of periods in a yearO C * < N=*>monthly rate:num#er of months in a yearO C *< N=*5++@8:*2O C * < *5+8?6 C *< +5+8?6 < 85?6B"nswer: C85?6B is a rate e(ual to or greater than 85?+B #ut less than 858+B'2FNAN 301, Spring 2012, final, solutions-. 1at is planning to save "(- eah month for ( &ears.6e plans to ma3e his first ontri!ution to his aount in 1 month from toda&.$f he has "000 in his aount toda& and e%pets to have "3,#-#.2# in his aount in ( &ears from toda&, immediatel& after ma3ing his last pa&ment, then what is the 2A: that he e%pets to earn on his aount,A. A rate less than #.004 or a rate greater than or e.ual to 0.)0445 " rate e(ual to or greater than 85++B #ut less than 85?+B/. A rate e.ual to or greater than #.(04 !ut less than #.#041. A rate e.ual to or greater than #.#04 !ut less than 0.2042. A rate e.ual to or greater than 0.204 !ut less than 0.)04%o solve:*: Find the monthly rate that he expects to earn2: Find the !" associated with the monthly rate from step **: Find the monthly rate that he expects to earnAf he makes payments for ? years, then he will make ? G *2 < ?8 payments, so , < ?8Af he has ;D++ in his account today, then PV < 'D++!,) &ode!nter ?8 'D++ '?6 9,868528, AB PV P&% FVSolve for +5@@+5@@ percent is the monthly rate associated with )atMs savings2: Find the !" associated with the monthly rate from step *!" < N=*>periodic rate:num#er of periods in a yearO C * < N=*>monthly rate:num#er of months in a yearO C *< N=*5++@@:*2O C * < *5+82* C *< +5+82* < 852*B"nswer: 4852*B is a rate e(ual to or greater than 85++B #ut less than 85?+B'3FNAN 301, Spring 2012, final, solutionsConceptual: identify which #ond has higher coupon rate and higher $%& from relative price #. Bonds A, B, /, and 1 have fae values of "1000, pa& semi;annual oupons with the ne%t oupon due in ) months, and mature in * &ears.Bonds A and B have different oupon rates, and !onds / and 1 have different &ields;to;maturit&.+hih assertion is true if ending value C initial value: - initial valuePercentage return over the past @ months < 75@B < 5+7@Anitial value < price of #ond @ months ago < ;D6@5++!nding value < price of #ond today < ;D6*5++Percentage return < =semi'annual coupon > ending value C initial value: - initial valueSo 5+7@ < =semi'annual coupon > D6*5++ C D6@5++: - D6@5++< =semi'annual coupon > ='75++:: - D6@5++So 5+7@ G D6@5++ < 7?5@@ < =semi'annual coupon > ='7:: So semi'annual coupon < 7?5@@ > 75++ < 7D5@@So annual coupons < semi'annual coupon G 2 < 7D5@@ G 2 < **D592Coupon rate < annual coupons - par value< ;**D592 - ;*,+++ < 5**D92 < **5D9B"nswers may differ slightly due to rounding'#FNAN 301, Spring 2012, final, solutions0. Bonds issued !& 2rie Shipping were pried at "02).00 si% months ago and are pried at "023.00 toda&.*he !onds have a fae