# FINANCE- What is the present value of a security that pays \$1,000 at the end of each year

Question

1- What is the present value of a security that pays \$1,000 at the end of each year for 10 years? Assume the interest rate is 10% per year.

2- What is the present value of a security that pays \$500 at the end of each 6 months for 10 years? Assume the interest rate is 10% per year.

3- What is the value of a security that pays \$1,000 at the beginning of each year for 10 years? Assume the interest rate is 10% per year.

4- What is the value of a security that pays \$1,000 at the end of each 2 years for 10 years? That is, you get 5 payments of \$1,000 each every-other year. Assume the interest rate is 10% per year.

5- What is the value of a security that pays \$1,000 at the beginning of each 2 years for 10 years? That is you get 5 payments of \$1,000 each every-other year. The first payment starts today. Assume the interest rate is 10%.

6- You are buying a house for \$150,000 and pay \$30,000 down. At 6% APR what will be your monthly payments? Assume 30 year mortgage.

7- Referring to Q # 6, what will be your monthly payment if you put zero down?

8- Referring to Q # 6, after making 120 payments, that is 10 years later, you want to pay-off the mortgage, what will be your pay-off balance?

9- Referring to Q # 6, after making 120 payments, that is 10 years later, you want to refinance your mortgage with 4% APR. The term of your original mortgage will not change. How much would be your new monthly payments? (2 points)

10- The advertised APR on your new credit card is 9%. But the fine prints in the terms and conditions booklet states it will be daily compounded. What is the effective APR you are charged?

11- What is the present value of a perpetuity that starts paying 1,000 per year in 2016? That is, it starts paying exactly one year from now. Assume a discount rate of 10%.

12- What is the present value of a perpetuity that starts paying 1,000 per year in 2017? That is, it starts paying exactly two years from now. Assume a discount rate of 10%. (2 points)

13- You start investing 100 per month (at the end of each month) in a saving account that pays 5%. After 10 years how much will you have in your account?

14- You open a new account and deposit \$1,000 today. You also deposit \$100 to the account each month. After 10 years how much will you have in the account if it pays 5%?

15- Your uncle likes the new Lexus GS350 listed for \$59,000 including taxes, title and fees. The dealership offered him 2.99 % APR if he puts 9,000 down, 3.99% with zero down payment. He is not sure how much his monthly payment would be with and without the down payments. He knows you took the financial management class at SAU, and asks your opinion. What would you say? Assume a conventional 5 year auto-loan. (2 points)

16- Your credit card balance is \$1,000 now with 14 APR compounded monthly. Your minimum payment is \$20. If you don’t use your credit card and continue paying the minimum, approximately, how long (in months) will it take to pay off the balance?

17- You would like to have \$1,000,000 in savings 30 years from now. If you open a mutual fund’s account and the account pays 12% per year, how much should you deposit in the account per month?

18- Joe finished college; got a job, paid off student loans and now he is 30 years old. He would like to have \$1,000,000 in savings when he reaches age 50. If Joe can earn 12% per year by investing in mutual funds, how much should he save per month to achieve his goal of becoming a millionaire?

19- You are interested in buying a new truck. The dealer offers you the truck for \$30,000 and you qualify for a promotional 0% APR, 60 month loan. If you decide to buy it cash, you have a \$3,000 instant rebate, so you pay \$27,000. You realize that the 0% APR is not really 0, as you pay \$3,000 more than if you pay cash. What implicit APR is the dealer charging you? (2 points)

20- Assume Sams club offers membership to students for \$30. You think you will need shopping once per month and each time you save \$4. Because Sam’s Club doesn’t provide shopping bags, it is an inconvenience for you and you think the inconvenience should be valued at \$1. That is, you think the actual savings should be less than \$4 per month. At 9.99% APR, is this membership a good value? (2 points)