You have just purchased a car from Friendly Sam. The selling price of the car is $6,500. If you pay $500 down, then your monthly payments are $317.22. The annual interest rate is 24%. How many payments must you make?
Answer: i=24/2, PV=6000, PMT=317.22, FV=0, n = 24 months
a.) If Sparco, Inc. deposits $150 at the end of each year for the next eight years in an account that pays 5% interest, how much money will Sparco have at the end of eight years?
b.) Suppose Sparco decides that they need to have $5,300 at the end of the eight years. How much will they have to deposit at the end of each year?
Answer:
a. n=8, i=5, PV=0, PMT=-150, FV= 1432.37
b. n=8, i=5, PV=0, FV=5300, PMT=-555.03
What is a series of equal payments for an infinite period of time called?
A) A perpetuity
B) An axiom
C) A cash cow
D) An annuity
You have just purchased a share of preferred stock for $50.00. The preferred stock pays an annual dividend of $5.50 per share forever. What is the rate of return on your investment?
A) .055
B) .010
C) .110
D) .220
The present value of a perpetuity decreases when the ________ decreases.
A) number of investment periods
B) annual discount rate
C) perpetuity payment
D) both B and C
You are going to pay $800 into an account at the beginning of each of 20 years. The account will then be left to compound for an additional 20 years. At the end of the 41st year you will begin receiving a perpetuity from the account. If the account pays 14%, how much will you receive each year from the perpetuity (round to nearest $1,000)?
A) $140,000
B) $150,000
C) $160,000
D) $170,000
You are considering the purchase of XYZ Company's common stock which will pay a $1.00 per share dividend one year from the date of purchase. The dividend is expected to grow at the rate of 4% per year. If the appropriate discount rate for this investment is 14%, what is the price of one share of this stock?
A) $7.14
B) $10.00
C) $25.00
D) Cannot be determined without maturity date
