Fundamentals of Financial Management, Concise Edition (MindTap Course List)
9th Edition
ISBN: 9781305635937
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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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.)
The present value of an ordinary annuity, PAN, is the value today that would be equivalent to the annuity payments (PMT) received at fixed intervals over the annuity period. The
equation is:
Each payment of an annuity due is discounted for one less
(1 + I). The equation is:
PVAN= PMT
1-
(1+1)N
I
period, so the present value of an annuity due is equal to the present value of an ordinary annuity multiplied by
PVA due PVA ordinary (1+1)
One can solve for payments (PMT), periods (N), and interest rates (I) for annuities. The easiest way to solve for these variables is with a financial calculator or a spreadsheet.
Quantitative Problem 1: You plan to deposit $1,700 per year for 5 years into a money market account with an annual return of 2%. You plan to make your first deposit one year
from today.
a. What amount will be in your account at the end of 5 years? Do not round intermediate calculations. Round your answer to the nearest cent.
$
b. Assume that your deposits will begin today. What…
Use the formula for the present value of an ordinary annuity or the amortization formula to solve the following problem.
PV​=$12,00​; PMT=​$400​; n=55​; =i​?
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 - Prob. 1PCh. 5 - PRESENT VALUE What is the present value of a...
Ch. 5 - FINDING THE REQUIRED INTEREST RATE Your parents...Ch. 5 - Prob. 4PCh. 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 - PRESENT AND FUTURE VALUES FOR DIFFERENT INTEREST...Ch. 5 - GROWTH RATES Sawyer Corporations 2015 sales were 5...Ch. 5 - EFFECTIVE RATE OF INTEREST Find the interest rates...Ch. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 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 - Prob. 20PCh. 5 - EVALUATING LUMP SUMS AND ANNUITIES Kristina just...Ch. 5 - LOAN AMORTIZATION Jan sold her house on December...Ch. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - PV AND LOAN ELIGIBILITY You have saved 4,000 for a...Ch. 5 - EFFECTIVE VERSUS NOMINAL INTEREST RATES Bank A...Ch. 5 - NOMINAL INTEREST RATE AND EXTENDING CREDIT As a...Ch. 5 - BUILDING CREDIT COST INTO PRICES Your firm sells...Ch. 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 - Prob. 37PCh. 5 - Prob. 38PCh. 5 - Prob. 39PCh. 5 - REQUIRED ANNUITY PAYMENTS A father is now planning...Ch. 5 - Prob. 41SPCh. 5 - Prob. 42IC
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Similar questions
- Each payment of an annuity due is compounded for one compounded for one Select- -Select- v period, so the future value of an annuity due is equal to the future value of an ordinary annuity v period. The equation is: FVAdue=FVAordinary (1 + I) The present value of an ordinary annuity, PVAN, is the value today that would be equivalent to the annuity payments (PMT) received at fixed intervals over the annuity period. The equation is: 1- (1+1)N PVAN= PMT Each payment of an annuity due is discounted for one -Select- period, so the present value of an annuity due is equal to the present value of an ordinary annuity multiplied by (1 + I). The equation is: DVA זדתarrow_forwardvalue 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.arrow_forwardPerpetuity 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 Falsearrow_forward
- Using an annuity, you may calculate the present value of a single payment or a series of payments you will receive. Is this statement correct or incorrect?arrow_forwardUse the formula for the present value of an ordinary annuity or the amortization formula to solve the following problem. PV $10,000; i=0.02; PMT $250; n ? (Round up to the nearest integer.) n =arrow_forwardIncreasing the number of periods will increase all of the following except: Select one: A. The present value of an annuity B. The present value of $1 C. The future value of $1 D. The future value of an annuityarrow_forward
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- 1. The future value of an ordinary annuity of n > 2 payments of R > 0 with periodic interest rate r >0 is the sum of all payments taken at the end of the term of the annuity.arrow_forwardSolve the problem. solve using the formula for the future value of an ordinary annuity. given the monthly payment, capital, the annual interest rate, are, and the number of monthly payments, antique, find the future value of the annuity. R=$1300; r = 8.5%; nt= 17 A) $24,398.04 B) $17,548.36 C) $23,397.81 D) $24,198.38 Please search only correct answer as I am | paying for this and I keep receiving incorrect onearrow_forwardUse the formula for the present value of an ordinary annuity or the amortization formula to solve the following problem. PV = $10,000; PMT = $400; n= 30; i = ? i= (Type an integer or decimal rounded to three decimal places as needed.)arrow_forward
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