Business Finance Help for College and University Students

Time Value of Money

Your grandfather has offered you a choice of one of the three following alternatives: $5,000 now; $1,000 a year for eight years; or $12,000 at the end of eight years. Assuming you could earn 11 percent annually, which alternative should you choose? If you could earn 12 percent annually, would you still choose the same alternativ ...continues

Time Value of Money (TVM) calculations

Problem 20. You need $23,956 at the end of nine years, and your only investment outlet is a 7 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. a. What single payment could be made at the beginning of the firs ...continues

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Problem 21. Beverly started a paper route on January 1, 1995. Every three months, she deposits $300 in her bank account, which earns 8 percent annually but is compounded quarterly. On December 31,1998, she used the entire balance in her bank account to invest in a certificate of deposit at 12 percent annually. How much will ...continues

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Problem 23. Tom Phillips has just invested $8,760 for his son (age one). This money will be used for his son's education 17 years from now. He calculates that he will need $60,000 by the time the boy goes to school. What rate of return will Mr. Phillips need in order to achieve this goal?

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Problem 25. Frank Bell has just retired from the telephone company. His total pension funds have an accumulated value of $200,000, and his life expectancy is 16 more years. His pension fund manager assumes he can earn a 12 percent return on his assets. What will be his yearly annuity for the next 16 years?

Mortgage Loan Payments: Jim Thomas borrows $70,000 toward the purchase of a home at 12 percent interest. His mortgage is for 30 years. a. How much will his annual payments be? b. How much interest will he pay over the life of the loan?

Jim Thomas borrows $70,000 toward the purchase of a home at 12 percent interest. His mortgage is for 30 years. a. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.) b. H ...continues

Price of bonds

Problem 10/4. The Hartford Telephone Company has a $1,000 par value bond outstanding that pays 11 percent annual interest. The current yield to maturity on such bonds in the market is 14 percent. Compute the price of the bonds for these maturity dates: a. 30 years. b. 15 years. c. 1 year. if applicable assume inter ...continues

Bond price when inflation premium changes

T Cruise Lines, Inc., issued bonds five years ago at $1,000 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 12 percent. This return was in line with the required returns by bondholders at that point as described below: Real rate of return . . . . . . . . . . . . 3% Inflation prem ...continues

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Problem 10/17. The preferred stock of Denver Savings and Loan pays an annual dividend of $5.60. It has a required rate of return of 8 percent. Compute the price of the preferred stock.

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Problem 10/22. Ecology Labs, Inc., will pay a dividend of $3 per share in the next 12 months (D1). The required rate of return (Ke) is 10 percent and the constant growth rate is 5 percent. a. Compute P0. (In the remaining questions for problem 22 all variables remain the same except the one specifically changed. Each qu ...continues