Annuity Present Values What is the value today of a 15-year annuity that pays $500 a year?The annuity’s first payment occurs at the end of year 6. The annual interest rate is 12 percentfor years 1 through 5, and 15 percent thereafter. (Ross, Stephen A.. Corporate Finance, 8th Edition. Irwin/McGraw-Hill, 112006. 4.8).
Growing Annuity Southern California Publishing Company is trying to decide whether to revise its popular textbook, Financial Psychoanalysis Made Simple. The company has estimated that the revision will cost $50,000. Cash flows from increased sales will be $12,000the first year. These cash flows will increase by 6 percent per year. The book will go out of print five years from now. Assume that the initial cost is paid now and revenues are received at the end of each year. If the company requires an 11 percent return for such an investment, should it undertake the revision? (Ross, Stephen A.. Corporate Finance, 8th Edition. Irwin/McGraw-Hill, 112006. 4.8).
Calculating Annuity Present Values You want to borrow $45,000 from your local bank tobuy a new sailboat. You can afford to make monthly payments of $950, but no more. Assumingmonthly compounding, what is the highest APR you can afford on a 60-month loan? (Ross, Stephen A.. Corporate Finance, 8th Edition. Irwin/McGraw-Hill, 112006. 4.8).
EAR versus APR You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 30-year mortgage for 80 percent of the $1,600,000 purchase price. The monthly payment on this loan will be $10,000. What is the APR on this loan? The EAR? (Ross, Stephen A.. Corporate Finance, 8th Edition. Irwin/McGraw-Hill, 112006. 4.8).
Bond Yields Stealers Wheel Software has 8.4 percent coupon bonds on the market with nine years to maturity. The bonds make semiannual payments and currently sell for 104 percent of par. What is the current yield on the bonds? The YTM? The effective annual yield? (Ross, Stephen...
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