Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 6, Problem 39QP
Summary Introduction
To think critically about: The relationship between the value of an
Introduction:
The total sum of interest that is due for a particular time is the interest rate. The interest rate can be due for a period as a proportion of the sum borrowed or deposited and as the proportion of the sum lent. The future sum of money that worth today is described by the present value. The present value of the cash flows in the future with a particular discount rate is the present value of annuity.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
value of a future payment change
as the un
to recelpt is lengthened? As the interest rate increases?
What's the difference between an ordinary annuity and an annuity due? Why would you
prefer to receive an annuity due for $10,000 per year for 10 years than an otherwise
similar ordinary annuity?
iii.
Suppose the risk - free interest rate is 4.2%.a. Having $200 today is equivalent to having what amount in one year?b. Having $200 in one year is equivalent to having what amount today?c. Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or why not?a. Having $200 today is equivalent to having what amount in one year?Having $200 today is equivalent to having Sin one year. (Round to the nearest cent.)
QUESTION ONE
We sometimes need to find out how long it will take a sum of money (or anything else to grow to some specified amount. For example, if a company's sales are growing at a rate of 20% per year, how long will it take sales to double?
If you want an investment to double in 3 years, what interest rate must it earn?
What is the difference between an ordinary annuity and an annuity due?
Chapter 6 Solutions
Fundamentals of Corporate Finance
Ch. 6.1 - Prob. 6.1ACQCh. 6.1 - Prob. 6.1BCQCh. 6.1 - Unless we are explicitly told otherwise, what do...Ch. 6.2 - In general, what is the present value of an...Ch. 6.2 - In general, what is the present value of a...Ch. 6.3 - If an interest rate is given as 12 percent...Ch. 6.3 - What is an APR? What is an EAR? Are they the same...Ch. 6.3 - Prob. 6.3CCQCh. 6.3 - What does continuous compounding mean?Ch. 6.4 - What is a pure discount loan? An interest-only...
Ch. 6.4 - What does it mean to amortize a loan?Ch. 6.4 - Prob. 6.4CCQCh. 6 - Two years ago, you opened an investment account...Ch. 6 - A stream of equal payments that occur at the...Ch. 6 - Your credit card charges interest of 1.2 percent...Ch. 6 - What type of loan is repaid in a single lump sum?Ch. 6 - Annuity Factors [LO1] There are four pieces to an...Ch. 6 - Prob. 2CRCTCh. 6 - Prob. 3CRCTCh. 6 - Present Value [LO1] What do you think about the...Ch. 6 - Prob. 5CRCTCh. 6 - Prob. 6CRCTCh. 6 - APR and EAR [LO4] Should lending laws be changed...Ch. 6 - Prob. 8CRCTCh. 6 - Prob. 9CRCTCh. 6 - Prob. 10CRCTCh. 6 - Prob. 11CRCTCh. 6 - Prob. 12CRCTCh. 6 - Prob. 1QPCh. 6 - Prob. 2QPCh. 6 - Prob. 3QPCh. 6 - Prob. 4QPCh. 6 - Calculating Annuity Cash Flows [LO1] If you put up...Ch. 6 - Calculating Annuity Values [LO1] Your company will...Ch. 6 - Calculating Annuity Values [LO1] If you deposit...Ch. 6 - Calculating Annuity Values [LO1] You want to have...Ch. 6 - Prob. 9QPCh. 6 - Calculating Perpetuity Values [LO1] The Maybe Pay...Ch. 6 - Prob. 11QPCh. 6 - Prob. 12QPCh. 6 - Calculating APR [LO4] Find the APR, or stated...Ch. 6 - Calculating EAR [LO4] First National Bank charges...Ch. 6 - Prob. 15QPCh. 6 - Prob. 16QPCh. 6 - Prob. 17QPCh. 6 - Calculating Present Values [LO1] An investment...Ch. 6 - EAR versus APR [LO4] Big Doms Pawn Shop charges an...Ch. 6 - Prob. 20QPCh. 6 - Calculating Number of Periods [LO3] One of your...Ch. 6 - Calculating EAR [LO4] Friendlys Quick Loans, Inc.,...Ch. 6 - Prob. 23QPCh. 6 - Calculating Annuity Future Values [LO1] You are...Ch. 6 - Calculating Annuity Future Values [LO1] In the...Ch. 6 - Prob. 26QPCh. 6 - Prob. 27QPCh. 6 - Prob. 28QPCh. 6 - Simple Interest versus Compound Interest [LO4]...Ch. 6 - Prob. 30QPCh. 6 - Prob. 31QPCh. 6 - Prob. 32QPCh. 6 - Calculating Future Values [LO1] You have an...Ch. 6 - Calculating Annuity Payments [LO1] You want to be...Ch. 6 - Prob. 35QPCh. 6 - Prob. 36QPCh. 6 - Prob. 37QPCh. 6 - Growing Annuity [LO1] Your job pays you only once...Ch. 6 - Prob. 39QPCh. 6 - Calculating the Number of Payments [LO2] Youre...Ch. 6 - Prob. 41QPCh. 6 - Prob. 42QPCh. 6 - Prob. 43QPCh. 6 - Prob. 44QPCh. 6 - Prob. 45QPCh. 6 - Prob. 46QPCh. 6 - Prob. 47QPCh. 6 - Prob. 48QPCh. 6 - Prob. 49QPCh. 6 - Calculating Present Value of a Perpetuity [LO1]...Ch. 6 - Prob. 51QPCh. 6 - Prob. 52QPCh. 6 - Calculating Annuities Due [LO1] Suppose you are...Ch. 6 - Prob. 54QPCh. 6 - Prob. 55QPCh. 6 - Prob. 56QPCh. 6 - Prob. 57QPCh. 6 - Prob. 58QPCh. 6 - Prob. 59QPCh. 6 - Prob. 60QPCh. 6 - Calculating Annuity Values [LO1] You are serving...Ch. 6 - Prob. 62QPCh. 6 - Calculating EAR with Points [LO4] The interest...Ch. 6 - Prob. 64QPCh. 6 - Prob. 65QPCh. 6 - Prob. 66QPCh. 6 - Prob. 67QPCh. 6 - Calculating Annuity Payments [LO1] This is a...Ch. 6 - Prob. 69QPCh. 6 - Prob. 70QPCh. 6 - Prob. 71QPCh. 6 - Calculating Interest Rates [LO4] A financial...Ch. 6 - Prob. 73QPCh. 6 - Prob. 74QPCh. 6 - Ordinary Annuities and Annuities Due [LO1] As...Ch. 6 - Calculating Growing Annuities [LO1] You have 40...Ch. 6 - Prob. 77QPCh. 6 - Prob. 78QPCh. 6 - Prob. 79QPCh. 6 - Prob. 80QPCh. 6 - Prob. 1MCh. 6 - Prob. 2MCh. 6 - Prob. 3MCh. 6 - Prob. 4MCh. 6 - Prob. 5MCh. 6 - Prob. 6M
Knowledge Booster
Similar questions
- 1. A consumer, who is initially a lender, remains a lender even after a decline in interest rates. Is this consumer better off or worse off after the change in interest rates? If the consumer becomes a borrower after the change is he better off or worse off? 2. What is the present value of $100 one year from now if the interest rate is 10%? What is the present value if the interest rate is 5%?arrow_forward10. Finding the interest rate and the number of years The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations. If a security of $4,000 will be worth $5,324.00 three years in the future, assuming that no additional deposits or withdrawals are made, what is the implied interest rate the investor will earn on the security? ○ 6.00% ○ 7.50% ○ 10.00% ○ 12.00% If an investment of $35,000 is earning an interest rate of 11.00% compounded annually, it will take value of $58,977.04-assuming that no additional deposits or withdrawals are made during this time. for this investment to grow to a Which of the following statements is true, assuming that no additional deposits or withdrawals are made? If you invest $1 today at 15% annual compound interest for 82.3753 years, you'll end up with approximately $100,000. ○ If you invest $5 today at 15% annual compound interest for 82.3753 years,…arrow_forward9. Suppose the interest rate is 3.8%. a. Having $600 today is equivalent to having what amount in one year? b. Having $600 in one year is equivalent to having what amount today? c. Which would you prefer, S600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? a. Having $600 today is equivalent to having what amount in one year? It is equivalent to $ (Round to the nearest cent.) b. Having $600 in one year is equivalent to having what amount today? It is equivalent to $ (Round to the nearest cent.) c. Which would you prefer, $600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? "Because money today is worth more than money in the future, $600 today is preferred to $600 in one year. This answer is correct even if you don't need the money today, because by investing the $600 you receive today at the current interest rate, you will have more than $600 in one year." Is the above statement true or…arrow_forward
- Question 8 Suppose a 65-year-old is contemplating retirement, expects to live for another 20 years, has a GHȼ1 million nest egg, expects the investments to earn a nominal annual rate of 6%, expects inflation to average 3% per year, and wants to withdraw a constant real amount annually over the next 20 years so as to maintain a constant standard of living. If the first withdrawal is to be made today, what is the amount of that initial withdrawal?arrow_forward10. Findingthe interest rate and the number of years The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations. If a security of $12,000 will be worth $14,292.19 three years in the future, assuming that no additional deposits or withdrawals are made, what is the implied interest rate the investor will earn on the security? 4.50% 4.80% 6.00% 7.20% If an investment of $45,000 is earning an interest rate of 8.50% compounded annually, it will take for this investment to grow to a value of $79,656.40—assuming that no additional deposits or withdrawals are made during this time. Which of the following statements is true, assuming that no additional deposits or withdrawals are made? If you invest $5 today at 15% annual compound interest for 82.3753 years, you’ll end up with approximately $100,000. If you invest $1 today at 15%…arrow_forwardD7) Consider two riskless perpetuities: (i) pays $120 every year; (ii) pays $10 every month. If the rates of returns of the two perpetuities are the same, investors must buy perpetuity (ii) because it makes more interest payments.arrow_forward
- N1 what is the value today of a security that will pay you $46 in three years and $87 six years from now? assume the interest rate is 10%.arrow_forward14. If the interest rate is 10%, what is the present value of a security that pays you $1,100 next year, $1,210 the year after, and $1,331 the year after that?arrow_forward5. Present value of annuities and annuity payments The present value of an annuity is the sum of the discounted value of all future cash flows. You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities earn the same positive interest rate. An annuity that pays $500 at the end of every six months An annuity that pays $1,000 at the beginning of each year An annuity that pays $1,000 at the end of each year An annuity that pays $500 at the beginning of every six months You bought an annuity selling at $17,390.08 today that promises to make equal payments at the beginning of each year for the next eight years (N). If the annuity’s appropriate interest rate (I) remains at 5.00% during this time, then the value of the annual annuity payment (PMT) is . You just won the lottery. Congratulations! The jackpot is $60,000,000, paid in eight…arrow_forward
- Question A What is the relationship between the value of an annuity and the level of interest rates? Suppose you just bought a value of annuity of $7,500 per year at the current interest rate of 10 percent per year. What happens to the value of your investment if interest rates suddenly drop to 5 percent? What if interest rates suddenly rise to 15 percent?.Full explain this question and text typing work only We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this linearrow_forwardSuppose you bought a 25-year annuity of $7,900 per year at the current discount rate of 12 percent per year. a. What is the value of your annuity today? (Do not round intermediate calculations and round your answer to 2 decimal places b. What is the present value if interest rates suddenly drop to 7 percent? c. What is the present value if interest rate suddenly rise to 17 percent?arrow_forwardSuppose you just bought an annuity with 10 annual payments of $16,500 at a discount rate of 13.75 percent per year. a. What is the value of the investment at the current interest rate of 13.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What happens to the value of your investment if interest rates suddenly drop to 8.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What happens to the value of your investment if interest rates suddenly rise to 18.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you