38. Calculating Loan Payments. You need a 30-years, fixed-rate mortgage to buy a new home for $250,000. Your mortgage bank will lend you the money at a 6.8 percent APR for this 360-month loan. However, you can only afford monthly payments of $1,200, so you offer to pay off any remaining loan balance at the end of the loan in the form of single balloon payment. How large will this balloon payment have to be for you to keep your monthly payments at $1,200?

54. Calculating Annuities. You have recently won the super jackpot in the Washington State Lottery. On reading the fine print, you discover that you have the following two options: a. You will receive 31 annual payments of $175,000, with the first payment being delivered today. The income will be taxed at a rate of 28 percent. Taxed will be withheld when the checks are issued.

b. You will receive $530,000 now, and you will not have to pay taxes on this amount. In addition, beginning one year from this annuity will be taxed at 28 percent. Using a discount rate of 10 percent, which option should you select?

65. Calculating Annuity Payments. Your friend is celebrating her 35th birthday today and wants to start saving for her anticipated retirement at age 65. She wants to be able to withdraw $110,000 from her savings account on each birthday for 25 years following her retirement; the first withdrawal will be on her 66th birthday. Your friend intends to invest her money in the local credit union, which offers 9 percents interest per year. She wants to make equal annual payments on each birthday into the account established at the credit union for her retirement fund. a. If she starts making these deposits on her 36th birthday and continues to make deposit until she is 65 (the last deposit will be on her 65th birthday), what amount must she deposit annually to be able to make the desired withdrawals at retirement?

b. Suppose your friend has just inherited a large sum of money....

...Chapter4
1.
If you invest $1000 today at an interest rate of 10% per year, how much will you have 20 years from now,
assuming no withdrawals in the interim?
SOLUTION:
n
PV
FV
PMT
Result
20
2.
i
10
1000
?
0
FV =6,727.50
a.
If you invest $100 every year for the next 20 years, starting one year from today and you earn interest
of 10% per year, how much will you have at the end of the 20 years?
b. How much...

...Solutions to Textbook Answers Chapter 1 Introduction
Solutions to questions
1. Finance involves three main areas—corporatefinance, financial institutions and markets, and investments—that are closely related and complementary. For example, in corporatefinance the central issues are how to acquire and employ or invest funds. To acquire funds a financial manager must deal with...

...Chapter4
15. For discrete compounding, to find the EAR, we use the equation:
EAR = [1 + (APR / m)]m – 1
= .0719, or 7.19%
EAR = [1 + (.07 / 4)]4 – 1
EAR = [1 + (.16 / 12)]12 – 1
= .1723, or 17.23%
= .1163, or 11.63%
EAR = [1 + (.11 / 365)]365 – 1
To find the EAR with continuous compounding, we use the equation:
EAR = er – 1
EAR = e.12 – 1 = .1275, or 12.75%
23.
Although the stock and bond accounts have different interest...

...Practice Problem Set – 1 ( The following problems are from CorporateFinance by Ross, Westerfield, and Jaffe – Tenth edition, McGraw-Hill / Irwin – ISBN 978-0-07-803477-0 ) 1. Audrey Sanborn has just arranged to purchase a $ 550,000 vacation home in the Bahamas with a 20 percent down payment. The mortgage has a 6.1 percent stated annual interest rate, compounded monthly, and calls for equal monthly payments over the next 30 years. Her first payment will be due one...

...Chapter 06
Discounted Cash Flow Valuation
Multiple Choice Questions
1. An ordinary annuity is best defined by which one of the following?
A. increasing payments paid for a definitive period of time
B. increasing payments paid forever
C. equal payments paid at regular intervals over a stated time period
D. equal payments paid at regular intervals of time on an ongoing basis
E. unequal payments that occur at set intervals for a limited period of time
...

...| Corporate Finance2 CreditsBU.231.620.62Thursday 6pm – 9pm, 10/18/2012--12/13/2012Fall2, 2012Columbia, Columbia Center, 218 |
Instructor
Shabnam Mousavi
Contact Information
Phone Number: (410)234-9450
E-mail Address: shabnam@jhu.edu
Office Hours
Monday/Thursday 10am-noon
Required Text and Learning Materials
(1) Berk, J. and P. DeMarzo. 2007. CorporateFinance. 2nd Edition. Pearson, Addison-Wesley with MyLab access. The ISBN is...

...Chapter4
29. 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.. CorporateFinance, 8th Edition. Irwin/McGraw-Hill, 112006. 4.8).
33. Growing Annuity Southern California Publishing Company is trying to decide whether to revise its...

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