Question

****FOR THIS HOMEWORK ASSIGNMENT, YOU MUST SHOW ALL WORK (CALCUATIONS) AND DRAW TIME LINES.

1) Jane is 25 years old and was able to save $25,000.    After doing some research, she identifies a stock called HPG Industries that has a dividend yield of 7% that has been consistent for the past 10 years. Based on this information, she decides to invest in this stock. Considering that HPG Industries pays the dividend consistently, how many years will it take for Jane to double her money?

2) For college graduation, Jose’s dad gives him $15,000 toward a car.   Jose thinks it through: With 10K he could probably buy a decent used car, but has his eyes on a Ford F150 pick-up truck that he’s wanted that he could buy for about $35,000. He decides to save the money and wait. He invests the $15,000 in a high risk bond that pays 12% interest per year and matures in 8 years.   Does Jose have enough money for the truck in 8 years?   Show all work.

3) Nalani and Steven, both in their early 20s, recently married and want to plan to save money so that they could buy a house by age 40. They estimate the cost of a home will be around $450,000 in 20 years.    After pooling their savings together, they have $57,000 saved. They can invest the money in a municipal tax free bond that pays 8% interest and matures in 20 years.   Will they have enough money to buy the home based on their current savings? How much, exactly, do they need today to be able to afford the house?

4) A bond promises to pay $250 in 3 years. The annual interest rate is 5%.   What is the bond’s price today?

5) You want to purchase a condo for $250,000. You have $50,000 to put down and you will take out a 20 year mortgage at 4% interest. What is your monthly mortgage payment?

6) After taking a finance course, you are serious about developing a MONTHLY plan to save and invest. You are 22 years old and want to retire at 62 years old with 1.5 million dollars.   How much do you have to save on a monthly basis if your interest rate is steady at 7%?

7) Jenny has a $5000 balance on her credit card that charges 18% interest, however, each month she gets her credit bill and there is an interest charge. Why is this happening?

8) John buys a corporate bond that pays 15%, pays interest twice per year, and matures in 20 years.   How many compounding periods are there?

9) Jose decides to open a restaurant. After analyzing costs and forecasting revenue he realizes he can earn about a 14% return on his investment.   What factors must Jose think about in making his decision?

10) Justin has saved 50,000. He can invest it in a real estate venture that will pay 15% for 10 years, and then in a mutual fund for an additional 10 years at a 9.75 annual return. He’s hoping that in 20 years, when he is 40, he will have enough money to pay for his child’s college education, estimated at about $75000 per year. Will he have enough?

11) Microsoft Corporation decides to invest in developing a robot that will help the elderly with tasks such as putting on socks, eating, etc.   The initial investment for this project is $52,000,000 (52M). The cash flows expected from this investment are 28 million in year 1, 19 million in year 2, 23 million in year 3 and 18 million in year 4.   What is the Net Present Value of this project?

Would this project be a good investment? Or would it be better to invest $52M in a bond paying 8% annually?  

Answer 1

As per rules I will answer the first 4 sub parts of this question

1: PV=25000

Rate=7%

FV= $50,000

Period taken for amount to double= =NPER(7%,,-25000,50000) = 10.24 years

2:PV= 15000

Rate=12%

N=8

FV after 8 years= =FV(12%,8,,-15000)= $37,139.45

He has enough money to buy the car.

3:N=20

PV= 57000

Rate = 8%

FV of the investment = =FV(8%,20,,-57000)= $265,674.56

They do not have enough money to buy the house in 20 years

PV of $450,000 = =PV(8%,20,,450000) = $96,546.69

Hence additional amount required= 96,546.69- 57000 = $39,546.69

4: FV=$250, N= 3,Rate= 5%

Price= =PV(5%,3,,250)= 215.96