1. Toadies, Inc., has identified an investment project with the following cash flows. Year Cash Flow 1 $ 1,525 2 1,645 3 1,730 4 1,780 If the discount rate is 8 percent, what is the future value of the cash flows in year 4? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value $ If the discount rate is 11 percent, what is the future value of the cash flows in year 4? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value $ If the discount rate is 24 percent, what is the future value of the cash flows in year 4? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value $ 2. The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $35,000 per year forever. If the required return on this investment is 5.30 percent, how much will you pay for the policy? (Round your answer to 2 decimal places. (e.g., 32.16)) Present value $ 3.First National Bank charges 13.6 percent compounded monthly on its business loans. First United Bank charges 13.9 percent compounded semiannually. Calculate the EAR for First National Bank and First United Bank. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) EAR First National % First United % As a potential borrower, which bank would you go to for a new loan? 4. Wainright Co. has identified an investment project with the following cash flows. Year Cash Flow 1 $ 920 2 1,330 3 1,590 4 1,775 If the discount rate is 10 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value $ What is the present value at 20 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value $ What is the present value at 30 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value $ 5. An investment offers $6,500 per year for 20 years, with the first payment occurring one year from now. If the required return is 7 percent, what is the value of the investment? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value $ What would the value be if the payments occurred for 45 years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value $ What would the value be if the payments occurred for 70 years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value $ What would the value be if the payments occurred forever? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value $ 6. Find the EAR in each of the following cases (Use 365 days a year. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)): Stated Rate (APR) Number of Times Compounded Effective Rate (EAR) 10.0 % Quarterly % 19.0 Monthly 15.0 Daily 12.0 Infinite 7. You are planning to make monthly deposits of $390 into a retirement account that pays 8 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 25 years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 8.Investment X offers to pay you $5,000 per year for eight years, whereas Investment Y offers to pay you $7,100 per year for five years. Calculate the present value for Investment X and Y if the discount rate is 5 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) Present value Investment X $ …
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