Question

An investment, which is worth 44,500 dollars and has an expected return of 13.27 percent, is expected to pay fixed annual cash flows for a given amount of time. The first annual cash flow is expected in 1 year from today and the last annual cash flow is expected in 5 years from today. What is the present value of the annual cash flow that is expected in 3 years from today?

An investment, which is worth 88,925 dollars and has an expected return of 17.61 percent, is expected to pay fixed annual cash flows for a given amount of time. The first annual cash flow is expected later today and the last annual cash flow is expected in 10 years from today. What is the present value of the annual cash flow that is expected in 2 years from today?

Jenny is buying a town house priced at $275,000. Mortgage A calls for her to make equal monthly payments for 15 years at a monthly interest rate of 0.80% with her first payment due in 1 month. However, her loan officer has offered her a new opportunity involving equal monthly payments for 20 years at a monthly interest rate of 0.75% with her first payment due later today. By how much would switching from mortgage A to the new opportunity reduce the amount of Jenny's monthly loan payment?

Fatima wants to buy a boat that is available at two dealerships. The price of the boat is the same at both dealerships. Middlefield Motors would let her make quarterly payments of 2,390 dollars for 10 years at a quarterly interest rate of 1.94 percent. Her first payment to Middlefield Motors would be due in 3 months. If Fairfax Boats would let her make equal monthly payments for 2 years at a monthly interest rate of 0.98 percent and if her first payment to Fairfax Boats would be today, then how much would each monthly payment to Fairfax Boats be?

Answer 1

(1) Present Value of Fixed Annual Cash Flows = Current Worth of the Investment = $ 44500

Expected Return = 13.27 %, Tenure of Fixed Annual Cash Flows = 5 years

Let the fixed annual cash flows be $ P

Therefore, 44500 = P x (1/0.1327) x [1-{1/(1.1327)^(5)}]

P = 44500 / 3.4942 = $ 12735.45

Present Value of the Fixed Annual Cash Flow coming in at the end of Year 3 = 12735.45 / (1.1327)^(3) = $ 8763.34

NOTE: Please raise separate qeuries for solutions to the remaining unrelated questions, as one query is limited to the solution of only one complete question (with a maximum of four sub-parts).