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FIN 3600 MOD 2 Homework
Chapter 3 Homework: P3-4a-b (pg. 103), P3-12a-c (pg. 104), and P3-17a (pg. 105)
Pages attached must be input on Excel Template.
NO PLAGIARISM PLEASE USE YOUR OWN WORDS
Summary
Chapter 3 Homework:
P3-4
a-b (pg. 103),
P3-12
a-c (pg. 104), and
P3-17
a (pg. 105)
P3-4
| 6 points | No credit will be given if work is not shown. Highlight or bold your answers. | ||
| You have a trust fund that will pay you $1 million exactly 10 years from today. You want cash now, so you are considering an opportunity to sell the right | |||
| to the trust fund to an investor. | |||
| a. What is the least you will sell your claim for if you could earn the following rates of return on similar-risk investments during the 10-year period? | |||
| 1. 6% | |||
| 2. 9% | |||
| 3. 12% | |||
| (Show your work. Label $. No decimal places required.) | |||
| b. Rework part (a) under the assumption that the $1 million payment will be received in 15 rather than 10 years. (Show your work. Label $. No | |||
| decimal places required.) |
P3-12
| 3 points |
| Gina Coulson has just contracted to sell a small parcel of land that she inherited a few years ago. The buyer is willing to pay $24,000 now. Alternatively, |
| the buyer will make the series of payments shown in the following table, with each payment made at the beginning of the year. Because Gina doesn’t |
| really need the money today, she plans to let it accumulate in an account that earns 7% annual interest. |
| a. What is the future value of the lump sum at the end of year 5? (Show your work. Label $. No decimal places required.) |
| b. What is the future value of the mixed stream at the end of year 5? (Show your work. Label $. Two decimal places required.) |
| c. Based on your findings in parts (a) and (b), which alternative should Gina take? |
P3-17
| 1 point |
| As part of your personal budgeting process, you have determined that at the end of each of the next five years you will incur significant maintenance |
| expenses on your home. You’d like to cover these expenses by depositing a lump sum in an account today that earns 8%. You will gradually draw down |
| this account each year as maintenance bills come due. |
| a. How much money must you deposit today to cover all of the expenses? (Show your work. Label $. No decimal places required.) |