Begining of Financial Economics

| January 23, 2016

Begining of Financial Economics
a) If the corporate tax rate is 40% and the individual tax rate is 20% (and these are the only taxes), if a corporation has $50,000 of operating income, what is the after tax income for its owners?
b) The tax rate is 15% between $0-$50,000 and 25% between $50,001-$100,000. If you earn $60,000, then what is your average and marginal tax rates?
c) A bank has quoted to you a monthly rate of 0.25% on a short-term loan. What is the stated annual rate of that loan?
d) What is the future value of $8 in three years if the interest rate is 20% and the compounding is continuous?
e) What is the future value of a 3-year annuity due with $50 cash flows if the annually compounded interest rate is 6%?
f) If we need to find the future value of a current cash flow and interest is compounded quarterly, how many periods of compounding occur in two and half years?
g) What is the difference between the present value of a 3-year ordinary annuity with a $20 cash flow and the present value of a 3-year annuity due with a $20 cash flow when the interest rate is 3.5%?

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