Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN: 9781337902571
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 5, Problem 6Q
Summary Introduction
To determine: The
Introduction:
Perpetuity: This refers to the cash flows which occur at fixed regular intervals. These cash flows are of equal values and are for an indefinite period. Perpetuity is also called as the perpetual
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The present value of a perpetuity is equal to the payment on the annuity, PMT, divided bythe interest rate, I : PV = PMT/I. What is the future value of a perpetuity of PMT dollars peryear? (Hint: The answer is infinity, but explain why.)
What's the future value of an 8%, 5-year ordinary annuity that pays $100 each year? If this was an annuity due, what would its future value be? Do not round intermediate calculations. Round your answers to the nearest cent.
Future Value of an Ordinary Annuity: $ _____
Future Value of an Annuity Due: $ ________
Perpetuity is a type of annuity which has infinite period of payments. The present value of a perpetuity equals to the annual payment divided by the required rate of return.
True or False
Chapter 5 Solutions
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Ch. 5 - Prob. 1QCh. 5 - Explain whether the following statement is true or...Ch. 5 - If a firms earnings per share grew from 1 to 2...Ch. 5 - Would you rather have a savings account that pays...Ch. 5 - Prob. 5QCh. 5 - Prob. 6QCh. 5 - Banks and other lenders are required to disclose a...Ch. 5 - Prob. 8QCh. 5 - FUTURE VALUE If you deposit 2,000 in a bank...Ch. 5 - PRESENT VALUE What is the present value of a...
Ch. 5 - FINDING THE REQUIRED INTEREST RATE Your parents...Ch. 5 - TIME FOR A LUMP SUM TO DOUBLE If you deposit money...Ch. 5 - TIME TO REACH A FINANCIAL GOAL You have 33,556.25...Ch. 5 - Prob. 6PCh. 5 - PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM An...Ch. 5 - LOAN AMORTIZATION AND EAR You want to buy a car,...Ch. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - GROWTH RATES Sawyer Corporations 2018 sales were 5...Ch. 5 - EFFECTIVE RATE OF INTEREST Find the interest rates...Ch. 5 - Prob. 13PCh. 5 - FUTURE VALUE OF AN ANNUITY Find the future values...Ch. 5 - PRESENT VALUE OF AN ANNUITY Find the present...Ch. 5 - Prob. 16PCh. 5 - EFFECTIVE INTEREST RATE You borrow 230,000; the...Ch. 5 - Prob. 18PCh. 5 - FUTURE VALUE OF AN ANNUITY Your client is 26 years...Ch. 5 - PV OF A CASH FLOW STREAM A rookie quarterback is...Ch. 5 - EVALUATING LUMP SUMS AND ANNUITIES Kristina just...Ch. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - PRESENT VALUE FOR VARIOUS DISCOUNTING PERIODS Find...Ch. 5 - Prob. 25PCh. 5 - PV AND LOAN ELIGIBILITY You have saved 4,000 for a...Ch. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 - REQUIRED LUMP SUM PAYMENT Starting next year, you...Ch. 5 - REACHING A FINANCIAL GOAL Six years from today you...Ch. 5 - FV OF UNEVEN CASH FLOW You want to buy a house...Ch. 5 - AMORTIZATION SCHEDULE a. Set up an amortization...Ch. 5 - AMORTIZATION SCHEDULE WITH A BALLOON PAYMENT You...Ch. 5 - Prob. 36PCh. 5 - PAYING OFF CREDIT CARDS Simon recently received a...Ch. 5 - Prob. 38PCh. 5 - Prob. 39PCh. 5 - Prob. 40PCh. 5 - Prob. 41SPCh. 5 - Prob. 42IC
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- (1) What is the value at the end of Year 3 of the following cash flow stream if the quoted interest rate is 10%, compounded semiannually? (2) What is the PV of the same stream? (3) Is the stream an annuity? (4) An important rule is that you should never show a nominal rate on a time line or use it in calculations unless what condition holds? (Hint: Think of annual compounding, when INOM = EFF% = IPER.) What would be wrong with your answers to parts (1) and (2) if you used the nominal rate of 10% rather than the periodic rate, INOM/2 = 10%/2 = 5%?arrow_forwardSuppose you are going to receive $12,700 per year for six years. The appropriate interest rate is 7.6 percent. a-1. What is the present value of the payments if they are in the form of an ordinary annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-2.What is the present value if the payments are an annuity due? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-1. Suppose you plan to invest the payments for six years. What is the future value if the payments are an ordinary annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-2. Suppose you plan to invest the payments for six years. What is the future value if the payments are an annuity due? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)arrow_forwardWhat is the future of a 7%, 5-years ordinary annuity that pays $300 each year? If this were an annuity due, what would its future value be?arrow_forward
- What's the future value of a 12%, 5-year ordinary annuity that pays $700 each year? If this was an annuity due, what would its future value be? Round your answers to the nearest cent.arrow_forwardWhat is the future value of an 11%, 5-year ordinary annuity that pays $350 each year? Do not round intermediate calculations. Round your answer to the nearest cent. $Â Â If this were an annuity due, what would its future value be? Do not round intermediate calculations. Round your answer to the nearest cent. $arrow_forward
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