I need help figuring out questions 1-4 Questions Answers 1 You are offered an in

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I need help figuring out questions 1-4

Questions Answers 1 You are offered an investment that will make three payments. The first payment of $5,600 will occur four years from today. The second of $6,700 will occur in five years, and the third of $7,800 will follow in seven years. If you can earn 91% percent, what is the most this investment is worth today? 2 A bank is offering 11.1% percent compounded quarterly. If you put $110 per quarterly at the end of each quarter in an account, how much will you have at the end of 5 year? 3 A bank is offering 9.8% percent compounded weekly. What is the effective annual rate (EAR)? 4 You have just purchased a new warehouse. To finance the purchase, you've arranged for a 30-year mortgage loan for 80 percent of the $2,700,000 purchase price. The monthly payment on this loan will be $13,600. What is the APR on this loan?

Explanation / Answer

Problem 1:

Find present value of all future cash flows

PV = 5600/1.091^4 + 6700/1.091^5 + 7800/1.091^7 = 12,526.8417

Investment worth today = $12,526.84

Problem 2:

r = 0.111/4 = 0.02775 per quarter, N = 5*4 = 20

PMT = 110, PV = 0

FV = (110/0.02775)*(1.02775^20 – 1) = 2,889.02

Problem 3:

(1 + EAR) = (1 + 0.098/52)^52)

EAR = (1 + 0.098/52)^52) – 1 = 0.102861 = 10.29%

Problem 4:

PV = 2,700,000*0.8 = 2,160,000

N = 30*12 = 360 month

PMT = 13,600

FV = 0

Compute r = 0.005386 per month

r = 0.005386*12 = 0.064629 per year

Nominal rate or APR = 6.463%

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