Question

Case# 2    Assume that you are nearing graduation and have applied for a job with...

Case# 2   

Assume that you are nearing graduation and have applied for a job with a local bank. As
part of the bank’s evaluation process, you have been asked to take an examination that
covers several financial analysis techniques. The first section of the test addresses
discounted cash flow analysis. See how you would do by answering the following
questions.

a. If Waris just got retirement. His company pension plan will pay him $2000 at the end
of each year for the next 15 years. He asks if he can receive the entire balance of his
pension account today, so that he can merge this with other investments. How much
money should his company give him today? The interest rate is 5%


b. If Ab Waris deposited $500 at the end of each year for 12 years into his savings
account. The bank charges 4% interest compounded monthly. What will the balance
be after 12 years?


b. Ghafoor & Sons wishes to borrow $10,000 for three years. A group of individuals
agrees to lend him this amount if he contracts to pay them $16,000 at the end of the
three years. What is the implicit compound annual interest rate implied by this
contract (to the nearest whole percent)?

No plagiarism

Homework Answers

Answer #1

a. Value of Future Pension Today = Annual Pension * Present Value Annuity Factor (0.05,15)

Value of Future Pension Today = 2000 * 10.37966

Value of Future Pension Today = $20759.32

b. Effective Annual Interest Rate = (1 + Monthly Interest)^12 - 1

Effective Annual Interest Rate = (1 + 0.04/12)^12 - 1

Effective Annual Interest Rate = 4.074%

Value of Deposits at the end of year 12 = Annual Deposit * Future Value Annuity Factor(4.074%,12)

Value of Deposits at the end of year 12 = 500 * 15.0899

Value of Deposits at the end of year 12 = $7544.94

c. Future Value = Present Value * (1 + Interest)^Years

16000 = 10000 * (1 + Interest)^3

1.60 = (1 + Interest)^3

1 + Interest = 1.60^(1/3)

1 + Interest = 1.1696

Interest = 16.96%

Please dont forget to upvote

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Time Value of Money Assume that you are nearing graduation and that you have applied for...
Time Value of Money Assume that you are nearing graduation and that you have applied for a job with a local bank. As part of the bank’s evaluation process, you have been asked to take an examination that covers several financial analysis techniques. The first section of the test addresses the time value of money. See how you would do by answering the following questions. Required 1. The basic present value equation has four parts. What are they? Explain. ​...
Assume that you are nearing graduation and have applied for a job with a local bank....
Assume that you are nearing graduation and have applied for a job with a local bank. The bank’s evaluation process requires you to take an examination that covers several financial analysis techniques. Answer the given questions. Answer the given questions. Question 1. What is the present value of the following uneven cash flow stream $50, $100, $75, and -$50 at the end of Years 0 through 3? The appropriate interest rate is 10%, compounded annually. Question 2. Suppose that, on...
Assume that you are nearing graduation and have applied for a job with a local bank....
Assume that you are nearing graduation and have applied for a job with a local bank. The bank’s evaluation process requires you to take an examination that covers several financial analysis techniques. Answer the given questions. Answer the given questions. Question 1. What is the present value of the following uneven cash flow stream $50, $100, $75, and -$50 at the end of Years 0 through 3? The appropriate interest rate is 10%, compounded annually. Question 2. Suppose that, on...
Assume that you are nearing graduation and have applied for a job with a local bank....
Assume that you are nearing graduation and have applied for a job with a local bank. As part of the bank’s evaluation process, you have been asked to take an examination that covers several financial analysis techniques. The first section of the test addresses discounted cash flow analysis. See how you would do by answering the following questions. a. Draw time lines for (1) a $100 lump sum cash flow at the end of Year 2, (2) an ordinary annuity...
You have approached Commonwealth Bank for a loan to buy a house. The bank offers you...
You have approached Commonwealth Bank for a loan to buy a house. The bank offers you a $500 000 loan, repayable in equal monthly instalments at the end of each month for the next 30 years. Required: a. If the interest rate on the loan is 4.5% per annum, compounded monthly, what is your monthly repayment (to the nearest dollar)? b. What is your weekly payment if you wish to pay weekly instalments and the interest rate is compounding weekly?...
Problem 1: Borrowing and Saving In this problem, you can assume it is instant and costless...
Problem 1: Borrowing and Saving In this problem, you can assume it is instant and costless to add or remove money from your savings account and to borrow or repay credit card debt. Furthermore, assume your risk-free savings account pays 1% interest annually, your credit card charges 12% interest annually, and that you have no other assets or debts. (a) Imagine you have $5,000 in your savings account and a $0 balance on your credit card. What is the most...
4. Assume that you are holding two bonds. A 30-year zero coupon bond, and 30-year coupon...
4. Assume that you are holding two bonds. A 30-year zero coupon bond, and 30-year coupon bond with 2% coupon. You are not planning to hold the bonds till maturity. If you expect the interest rates to decrease sharply, which bond would you rather get rid-off (sell)? explain 5. Read this case carefully. “You relative asks you to lend him money and promised to pay you 8% per year. You know that the bank offers 5% return on a saving...
1. Assume that you are holding two bonds. A 30-year zero coupon bond, and 30-year coupon...
1. Assume that you are holding two bonds. A 30-year zero coupon bond, and 30-year coupon bond with 2% coupon. You are not planning to hold the bonds till maturity. If you expect the interest rates to decrease sharply, which bond would you rather get rid-off (sell)? explain 2. Read this case carefully. “You relative asks you to lend him money and promised to pay you 8% per year. You know that the bank offers 5% return on a saving...
Show your calculations and answer the following questions - An investment will pay you $120 in...
Show your calculations and answer the following questions - An investment will pay you $120 in one year and $200 in two years. Calculate the present value of these cash flows if the interest rate is 4%. -Suppose you invest $1000 in an account paying 6% interest per year. What is the balance in the account after 3 years? Calculate how much of this balance corresponds to “interest on interest” - If Brandon receives 6 percent interest rate on his...
Show your calculations and answer the following questions - An investment will pay you $120 in...
Show your calculations and answer the following questions - An investment will pay you $120 in one year and $200 in two years. Calculate the present value of these cash flows if the interest rate is 4%. -Suppose you invest $1000 in an account paying 6% interest per year. What is the balance in the account after 3 years? Calculate how much of this balance corresponds to “interest on interest” - If Brandon receives 6 percent interest rate on his...