TUTTo
=
Discount rate
P5-30 Value of a mixed stream For each of the mixed streams of cash flows shown . the
re
following table, deternmine the future value at the end of the final year it depo
that no withdrawaid
made into an account paying annual interest of 12%. assuming are made during the period and
that the deposits are made
a. At the end of each year (i.e., the first deposit occurs 1 year from now
b. At the beginning of each year (i.e., the first deposit occurs immediately
Cash flow stream
Year A B C
$ 900 $30,000 $1,200
1,200
2 1,000 25,000
1,000
1,200 20,000
A 10,000 1,900
5 5,000
Personal Finance Probiem contracted to
Gina Vitale has just
a mixed stream
Value of a single amount versus The buyer is willing
to
P5-31 of land that she
inherited a
few years ago. now and
sell a small parcel will series of 5 payments
starting
now, or the buyer make a
Because Gina doesn't
pay $24,000 shown in the table below.
intervals earns
continuing at annual as accumulate in an account that
today, she plans to let it
a the she
really need the money desire to buy
the mixed
house S years after selling lot,
Given her sum or
7% annual interest. alternative - either the lump
choose will
decides to the payment value atter 5 years. Which alternative
future
stream - that provides the higher
she choose?
Mixed stream
Cash flow
Time
$ 2,000
1 4,000
6,000
3 8,000
A 10,000
the mixed streams of
Present valuc: Mined strcams Consider cash flows. shown n
the tollowing table.
Cash flow stream
A B
Year
0 -$50,000 $10,000
1 40,000 20,000
2 30,000 30,000
3 20,000 40,000
4
10,000 -50,000
Totals
$50,000 $50,000
Find the
a. present value of each stream using a S% discount rate.
b. Compare the calculated present values and discuss them in light of the undis
counted cash flows
totaling $50,000 in each case. Is there some discount rare
which the values
present of the two streams would be equal:
payment required
Determine the equal, end - of - year o.
ch year« over
Loan payment table to repay them fully durov,
the lite ot the loans shown
in the tollowing
during the
loan.
stated term ot the
Term of loan (years)
Loan Principal Interest rate
8% 3
A $12,000
B 60,000 12 10
30
C 75,000 10
D 4,000 15 5
Personal Finance Problem
P5-49 Loan amortization schedule Joan Messineo borrowed $45,000 at a 4% annual rae
of interest that she must repay over 3 years. The loan is amortized into three equal.
end-of-year payments.
Calculate the loan
a. end-of-year payment.
b. Prepare a loan amortization schedule showing the interest and principal breax down of each of the three loan
payments.
the
C. Explain why interest portion of each payment declines with the passage o
P5-54 Rate of return: Annuity What is the rate of return on an investment of $10,606 if
for 10
the investor will receive $2,000 each year the next years?
P5-57 Loan rates of interest John Flemming has been shopping for a loan to finance the
purchase of a used car. He has found three possibilities that seem attractive and
wishes to select the one with the lowest interest rate. The information available with respect to each
of the three $5,000 loans is shown in the following table. Each loan
requires John to make one payment at the end of each year.
Loan Principal Annual payment Term (years)
A $5,000 $1,352.81 5
B 5,000 1,543.21 4
C 5,000 2,010.45 3
Determine the
a. interest rate associated with each of the loans.
Which
b. loan should John take?
P5-58 Number of needed following
years to acccumulate a future anmount For each ofor the
c
cases, determine the number equal the future
of years it will take for the initial deposit to 8 to
amount
at the given interest rate.
Case Initial deposit Future amount 30,000
A $ 300 $
B 12,000 1,000
C 9,000 15,000
D 100 20,000
E 7,500 500
Interest rate
7%
10
9
15
