For the questions 3&4

| June 10, 2016

Question
Finance 325
Introduction to Financial Management
Instructor: Yinfei Chen
Spring 2014

Assignment 1 (due at the beginning of class on Friday, Feb 7th):
Remember: you will be expected to show your all work. (3 points for each
question)

1.

What is the present value of $1,000 to be received 8 years from now? The interest rates
are 10%.

PV = = $466.51
Financial Calculator:

2.

We bought a stock for $45.85 four years ago and we can sell it for $59.13 today. The
stock does not pay dividends. What annual rate of return have we earned?

59.13 = 45.85 (1 + i) 4
i = 6.57%
Financial Calculator:

3.

What is the accumulated sum if $1,000 is deposited at the end of every year for 5 years
into an account compounded annually at 5%?

FVAN = PMT
FVA5 = $1000 = $5525.63
Financial Calculator:

4.

Now, work the problem 3 assuming an annuity due rather than an ordinary annuity

FVAN due = FVA5 (1 + i) = $5,526 (1 + 5%) = $5801.91
Since it is an annuity due, payments occur at the beginning of each
period, so we have to put the calculator in BEGIN MODE
Input

5

5

0

-1,000

N

I

PV

PMT

Output

5.

You buy a house for $250,000. You put $50,000 down, and get a 30-year fixed 6.5
percent loan for the rest. How much is your monthly payment?

PVAN = PMT

FV
5,801.91

$200,000 = PMT

6.

PMT = $1264.14

How long will it take to pay off a $27,000 loan with a 14 percent APR which compounds
monthly? The payment is $450 per month

PVAN = PMT
$27,000 = $450 by guessing or by using ln function to solve
N = 104 Months

APR = 14%, m = 12, so EAR = 14.93%

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