finanacial management
1. You have some money on deposit in a bank account that pays a nominal (or quoted) rate of 8.0944 percent, but with interest compounded daily (using a 365-day year). Your friend owns a security that calls for the payment of $10,000 after 27 months. The security is just as safe as your bank deposit, and your friend offers to sell it to you for $8,000. If you buy the security, by how much will the effective annual rate of return on your investment change?
a. 1.87%
b. 1.53%
c. 2.00%
d. 0.96%
e. 0.44%
2. Find the present value of an income stream that has a negative flow of $100 per year for 3 years, a positive flow of $200 in the 4th year, and a positive flow of $300 per year in Years 5 through 8. The appropriate discount rate is 4 percent for each of the first 3 years and 5 percent for each of the later years. Thus, a cash flow accruing in Year 8 should be discounted at 5 percent for some years and 4 percent in other years. All payments occur at year-end.
a. $ 528.21
b. $1,329.00
c. $ 792.49
d. $1,046.41
e. $ 875.18
3. Steaks Galore needs to arrange financing for its expansion program. One bank offers to lend the required $1,000,000 on a loan that requires interest to be paid at the end of each quarter. The quoted rate is 10 percent, and the principal must be repaid at the end of the year. A second lender offers 9 percent, daily compounding (365-day year), with interest and principal due at the end of the year. What is the difference in the effective annual rates (EFF%) charged by the two banks?
a. 0.31%
b. 0.53%
c. 0.75%
d. 0.96%
e. 1.25%
4. John Keene recently invested $2,566.70 in a project that is promising to return 12 percent per year. The cash flows are expected to be as follows:
End of Year Cash Flow 1 $325 2 400 3 550 4 ? 5 750 6 800
What is the cash flow at the end of the 4th year?
a. $1,187
b. $ 600
c. $1,157
d. $ 655
e. $1,267
5. Foster Industries has a project that has
a. 1.87%
b. 1.53%
c. 2.00%
d. 0.96%
e. 0.44%
2. Find the present value of an income stream that has a negative flow of $100 per year for 3 years, a positive flow of $200 in the 4th year, and a positive flow of $300 per year in Years 5 through 8. The appropriate discount rate is 4 percent for each of the first 3 years and 5 percent for each of the later years. Thus, a cash flow accruing in Year 8 should be discounted at 5 percent for some years and 4 percent in other years. All payments occur at year-end.
a. $ 528.21
b. $1,329.00
c. $ 792.49
d. $1,046.41
e. $ 875.18
3. Steaks Galore needs to arrange financing for its expansion program. One bank offers to lend the required $1,000,000 on a loan that requires interest to be paid at the end of each quarter. The quoted rate is 10 percent, and the principal must be repaid at the end of the year. A second lender offers 9 percent, daily compounding (365-day year), with interest and principal due at the end of the year. What is the difference in the effective annual rates (EFF%) charged by the two banks?
a. 0.31%
b. 0.53%
c. 0.75%
d. 0.96%
e. 1.25%
4. John Keene recently invested $2,566.70 in a project that is promising to return 12 percent per year. The cash flows are expected to be as follows:
End of Year Cash Flow 1 $325 2 400 3 550 4 ? 5 750 6 800
What is the cash flow at the end of the 4th year?
a. $1,187
b. $ 600
c. $1,157
d. $ 655
e. $1,267
5. Foster Industries has a project that has