Beginning three months from now, you want to be able to withdraw $1,700 each quarter from your bank account to cover college expenses over the next 4 years. The account pays 1.25 percent interest per quarter. How much do you need to have in your account today to meet your expense needs over the next 4 years?
Number of withdrawals=4*4=16
Interest rate=i=1.25% per ...
Solution depicts the steps to estimate the current value of future financial requirements in the given case.
Finance and the Market
1. What is the difference between the primary market and the secondary market?
2. What is the relationship between financial decision making and risk and return?
3. What is an efficient market and what are the implications of efficient markets for us?
4. There are several limitations to ratio analysis. Name three.
5. Napa Valley Winery (NVW) is a boutique winery that produces a high-quality, nonalcoholic red wine from organically grown cabernet sauvignon grapes. It sells each bottle for $30. NVW's chief financial officer, Jackie Cheng, has estimated variable costs to be 70 percent of sales. If NVW's fixed costs are $360,000, how many bottles of its wine must NVW sell to break even?
6. Define the term operating leverage. What type of effect occurs when the firm uses operating leverage?
7. What is a cash budget? A cash budget consists of what four elements?
8. What is the time value of money?
9. What is an annuity? Distinguish between an annuity and a perpetuity.
10. To what amount will the following investments accumulate?
a. $4,000 invested for 11 years at 9 percent compounded annually
b. $8,000 invested for 10 years at 8 percent compounded annually
c. $800 invested for 12 years at 12 percent compounded annually
d. $21,000 invested for 6 years at 5 percent compounded annually
11. What is the present value of the following future amounts?
a. $800 to be received 10 years from now discounted back to the present at 10 percent
b. $400 to be received 6 years from now discounted back to the present at 6 percent
c. $1,000 to be received 8 years from now discounted back to the present at 5 percent
d. $900 to be received 9 years from now discounted back to the present at 20 percent