Davis, Michaels and Company

Solving for r in the above equation we get 14.318% as the effective interest rate.

What is the effective annual rate on a 1-year loan with an interest rate quoted on a discount basis of 22.25%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

II.|Connie has an investment portfolio in excess of $450,000. She pays Chris $350 to do an analysis of her investments and make recommendations on restructuring the portfolio.|

12. Today, you deposit $10,750 in a bank account that pays 3 percent simple interest. How much interest will you earn over the next 7 years?

A person deposited $500 in a savings account that pays 5% annual interest that is compounded yearly. At the end of 10 years, how much money will be in the savings account? (Bluman, A. G. 2005, page 230).

$25,000 if invested for 18 years at a 1.72% interest rate. The stated rate of

b. If only $18,000 is invested, what annual interest rate is needed to produce the needed

Every new employee is faced with the challenge of proving him or herself before being trusted to complete a task on his or her own without supervision. The new financial analyst at Caladonia has been employed for two months and has proven to be a wise hiring decision based on the Chief Executive Officer (CEO) view however he is still hesitant to give the assistant any large responsibilities without supervision. The CEO has tasked the assistant with both the calculation of the cash flows associated with a new investment under

Debbie wants to have $38,855 in her bank account 5 years from now. The account will pay 0.7% interest per month. How much money does she need to put in her bank account at the end of each month to achieve this goal?

After retirement, she wants to live a life style that will cost about $35,000 per year, payable at the beginning of each year. Her planning horizon is 30 years (i.e. she does not expect to live longer than age 95). Assume the rate of interest is 5%, all investments are made at the end of the year, and all expenses are payable at the beginning of the year. (a) How much money will she have when she retires at 65? (4 marks) (b) How much money does she need at age 65 to support her post-retirement years? (4 marks) (c) If her post-retirement expenses start as stated above at $35,000 per year but increase at the expected rate of inflation of 2% per year, how much money does she need at age 65 to support her retirement? (5 marks) (d) To reach the amount found in part (c) she is planning to invest $X this year, and increases this amount every year at the rate of 3% per year, what is this amount X? (5 marks) Answer (a) She will have FV = PMT x FVAF(5%, 40 years) = $603,998.87 (b) She will need PV of Annuity Due: PV = PMT x PVAF(5%, 30 years) x (1.05) = $564,937.58 (c) She will need PV of Growth Annuity Due: PV = [(35,000)(1.05)/(5% - 2%)] x [1 - (1.02/1.05)30] = $711,592.43 (d) She needs to have the amount calculated in (c), i.e. $711,592.43: [(X)/(.05-.03)] x [(1.05)40 - (1.03)40] = 711,592.43 X = $3,767.08

for $100,000. If interest is compounded continuously, what annual nominal rate of interest did the

Part I: A. The present value of my future bank account is: 15,000 / (1+.07) = $14,019. If the rate is only 4%, then the present value of my future bank account is 15,000 / (1.04) = $14,423.

What is the future value of a $ 500 annuity payment over five years if interest rates are 9 percent? Recalculate the future value at 8 percent interest, and again at 10 percent interest.

Sandra Macmillan, one of the founders of Macmillan and Grunski Consulting which provides financial planning services, is now giving a short project to Mary Somkin, the firm¡¯s top secretary. If she can successfully demonstrate her ability and skill of discounted cash flow (DCF) analysis, one of the most important concepts in financial planning, she can expand her role in the firm and broaden her job opportunity.

You are saving for the college education of your two children. They are two years apart in age; one will begin college 15 years from today and the other will begin 17 years from today. You estimate your children’s college expenses to be $23,000 per year per child, payable at the beginning of each school year. The annual interest rate is 5.5 percent. How much money must you deposit in account each year to fund your children’s education? Your deposits begin one year from today. You will make your last deposit when your oldest child enters college. Assume four years of college