Question

Could someone answer all of the question, cus I dont have the remaining

6.   Use the tables for the following problem.

Polly wants to buy her first home in five years.  She will need $15,000 as a down payment.  Polly just won some money on a gambling boat.  Her savings account, which is compounded quarterly, earns an annual rate of 8%.  How much should Polly set aside now out of her winnings to have enough for her down payment?

Table ________________

Row _________________

Column (rate) _________

Factor _______________

          Present Value ___________

7.  Anderson  Bank and Trust is advertising five year loans at a 7.8% APR with monthly payments.  What is the effective annual rate on this loan? _______________

8.  Dalton just bought a certificate of deposit at his bank and the rate printed on the front is 4.9%.  Dalton knows that inflation is running at 2.25%.

What is the APPROXIMATE real rate Dalton is getting? ________________

What is the EXACT real rate Dalton is getting? _________________

9.  Nancy’s Antiques, Inc. just added a whole new line of furniture to her product line.  Nancy expects this addition to result in record high dividends of $4.00 and $4.50 in the next two years.  After that, she thinks her growth will level off at its usual 4.5% rate.  The rate expected in the marketplace for investments similar to Nancy’s is 6%.

What is the current value of a share of Nancy’s? ______________

What will the value of a share be in year two (P₂)? ______________

What will the value of a share be in year twelve (P₁₂)? ______________

Answer 1

6)

Number of periods = 5 * 4 = 20

Rate = 0.08 / 4 = 0.02 or 2%

Future value = present value ( 1 + r)^t

15,000 = Present value( 1 + 0.02)²⁰

15,000 = Present value * 1.485947

Present value = $10,094.57

7)

Effective annual rate = ( 1 + 0.078/12)¹² - 1

Effective annual rate = ( 1 + 0.0065)¹² - 1

Effective annual rate = 1.08085 - 1

Effective annual rate = 0.08085 or 8.085%

8)

Approxomate real rate = 4.9% - 2.25% = 2.65%

Exact real rate = [( 1 + nominal return) / ( 1 + inflation rate)] - 1

Exact real rate = [( 1 + 0.049) / ( 1 + 0.025)] - 1

Exact real rate = [ 1.049 / 1.025] - 1

Exact real rate =0.023415 or 2.3415%