FIN 571 Week 4 Quiz

FIN 571 Week 4 Quiz
1. Present value: Tommie Harris is
considering an investment that pays 6.5 percent annually. How much must he
invest today such that he will have $25,000 in seven years? (Round to the
nearest dollar.)
2. PV of multiple cash flows: Jack
Stuart has loaned money to his brother at an interest rate of 5.75 percent. He
expects to receive $625, $650, $700, and $800 at the end of the next four years
as complete repayment of the loan with interest. How much did he loan out to
his brother? (Round to the nearest dollar.)
3. PV of multiple cash flows:
Hassan Ali has made an investment that will pay him $11,455, $16,376, and
$19,812 at the end of the next three years. His investment was to fetch him a
return of 14 percent. What is the present value of these cash flows? (Round to
the nearest dollar.)
4. PV of multiple cash flows: Pam Gregg is expecting
cash flows of $50,000, $75,000, $125,000, and $250,000 from an inheritance over
the next four years. If she can earn 11 percent on any investment that she
makes, what is the present value of her inheritance? (Round to the nearest
dollar.)
5. Present value of an annuity:
Transit Insurance Company has made an investment in another company that will
guarantee it a cash flow of $37,250 each year for the next five years. If the
company uses a discount rate of 15 percent on its investments, what is the
present value of this investment? (Round to the nearest dollar.)
6. Future value of an annuity:
Carlos Menendez is planning to invest $3,500 every year for the next six years
in an investment paying 12 percent annually. What will be the amount he will
have at the end of the six years? (Round to the nearest dollar.)
7. Bond price:Briar Corp is
issuing a 10-year bond with a coupon rate of 7 percent. The interest rate for
similar bonds is currently 9 percent. Assuming annual payments, what is the
present value of the bond? (Round to the nearest dollar.)
8. PV of dividends:Cortez, Inc.,
is expecting to pay out a dividend of $2.50 next year. After that it expects its
dividend to grow at 7 percent for the next four years. What is the present
value of dividends over the next five-year period if the required rate of
return is 10 percent?
9. PV of dividends: Givens, Inc.,
is a fast growing technology company that paid a $1.25 dividend last week. The
company’s expected growth rates over the next four years are as follows: 25
percent, 30 percent, 35 percent, and 30 percent. The company then expects to
settle down to a constant-growth rate of 8 percent annually. If the required
rate of return is 12 percent, what is the present value of the dividends over
the fast growth phase?