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Problem Walk-Through Problem Walk-ThroughProblem Walk-Through Problem Walk-Through Problem Walk-ThroughProblem Walk-ThroughProblcm Walk-Through Problem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-Through Present and future values of a cash How stream An investment will pay $100 at the end of each of the next 3 years. S200 at the end of Year 4. $350 at the end of Year 5. and S550 at the end of Year 6. If other investments of equal risk earn 12% annually, what is its present value? Round your answer to the nearest cent. If other investments of equal risk cam 12% annually, what is its future value? Round your answer to the nearest cent. Loan amortization and EAR You want to buy a car. and a local bank will lend you $15.000. The loan will be fully-amortized over 5 years (60 months), and the nominal interest rate will be 4% with interest paid monthly. What will be the monthly loan payment? Do not round intermediate steps. Round your answer to the nearest cent. What will be the loan's EAR? Do not round intermediate steps. Round your answer to two decimal places Time Value of Money: Perpetuities An annuity that goes on indefinitely is called a perpetuity. The payments of a perpetuity constitute a/an_series. The equation is: A_slock with no maturity is an example of a perpetuity Quantitative Problem: You own a security that provides an annual dividend of $155 forever. The security's annual return is 9%. What is the present value of this security? Round your answer to the nearest cent.

Explanation / Answer

       6 Details Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Cash flows                  100              100           100          200          350          550 PV factor @12% =            0.8929        0.7972     0.7118    0.6355    0.5674    0.5066 PV of Cash Flows=Cash flows*PV facotor=              89.29          79.72       71.18    127.10    198.60    278.65 Total Of PV of Cash flows $        844.53 Compounding Years                         5                   4                3              2              1             -   Compounding Factor @12%(FV factor)              1.762          1.574       1.405      1.254      1.120               1 Future Value of Cash flows=Cash flows*FV factor            176.23        157.35     140.49    250.88    392.00    550.00 Total Of FV of Cash flows= $    1,666.96        7 Nominal Interest rate =4% compounded monthly EAR =(1+0.04/12)^12-1 4.074% So EAR =4.074 % pa So Effective rate per month=4.07/12=0.3392% per month Loan Amortization Formula Formula for loan amortization = A= [i*P*(1+i)^n]/[(1+i)^n-1] Amt $ A = periodical installment ? P=Loan amount = 15,000 i= interest rate per period = 0.3392% per month n=total no of payments 60 A= [0.003392*15000*1.003392^60]/(1.003392^60-1) Monthly Installment =$276.72        8 Payment of perpetuity is an Infinite series of cash flows. The formula for PV of perpetuity is =Dividend/Cost of Security Fixed rate perpetual Preferred stock is an example of perpetual stock with no maturity Problem: Perpetual dividend =155 Return of security =9% PV of Perpetuity=155/9%=1722 So the PV of the Perpetuity =$1,722

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