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If you invest $9,000 today, how much will you have

Complete the following Problems from Foundations of Financial Management (11th ed.)
Stanley B. Block and Geoffrey A. Hirt
Irwin/McGraw-Hill, 2005
Burr Ridge, IL

Chapter 9

3.
If you invest $9,000 today, how much will you have:
a. In 2 years at 9 percent?
b. In 7 years at 12 percent?
c. In 25 years at 14 percent?
d. In 25 years at 14 percent (compounded semiannually)?

5.
How much would you have to invest today to receive:
a. $15,000 in 8 years at 10 percent?
b. $20,000 in 12 years at 13 percent?
c. $6,000 each year for 10 years at 9 percent?
d. $50,000 each year for 50 years at 7 percent?

6.
If you invest $2,000 a year in a retirement account, how much will you have:
a. In 5 years at 6 percent?
b. In 20 years at 10 percent?
c. In 40 years at 12 percent?

17.
Jack Hammer invests in a stock that will pay dividends of $2.00 at the end of the first year; $2.20 at the end of the second year; and $2.40 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $33. What is the present value of all future benefits if a discount rate of 11 percent is applied? (Round all values to two places to the right of the decimal point.)

Chapter 10

2.
Midland Oil has $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity is:
a. 7 percent.
b. 10 percent.
c. 13 percent.

19.
North Pole Cruise Lines issued preferred stock many years ago. It carries a fixed dividend of $6 per share. With the passage of time, yields have soared from the original 6 percent to 14 percent (yield is the same as required rate of return).
a. What was the original issue price?
b. What is the current value of this preferred stock?
c. If the yield on the Standard & Poor's Preferred Stock Index declines, how will the price of the preferred stock be affected?

24.
Friedman Steel Company will pay a dividend of $1.50 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.
(For parts b, c, and d in this problem all variables remain the same except the one specifically changed. Each question is independent of the others.)
b. Assume Ke, the required rate of return, goes up to 12 percent; what will be the new value of P0?
c. Assume the growth rate (g) goes up to 7 percent; what will be the new value of P0?
d. Assume D1 is $2, what will be the new value of P0?

Solution Preview

For all the calculations see the attached excel files.

2)Say you invest $9,000 today, how much will you have: P=present value, F= Future value r= rate of interest n=duration
F=P*(1+r)^n

a. In 2 years at 9 percent? 10692.90 3967.50

b. In 7 years at 12 percent? 19896.13

c. In 25 years at 14 percent? 238157.24

d. In 25 years at 14 percent (compounded semiannually)? 265113.23 Here r will be divided by half and duration will be multiplied by 2 as
there is compounding semiannually

3)How much would you have to invest today to receive:

P=present value, F= Future value r= rate of interest n=duration
P=F/(1+r)^n

a. $15,000 in 8 years at 10 percent? 6997.61

b. $20,000 in 12 years at 13 percent? 4614.12

Here we have to find out the present value of annuity
P=A*((1/r)-((1/(r*((1+r)^n)))
P=present value, A= Annuity r= rate of interest n=duration

By excel function
c. $6,000 each year for 10 years at 9 percent? 38505.95 ($38,505.95)

d. $50,000 each year for 50 years at 7 percent? 690037.31 ($690,037.31)

4)If you invest $2,000 a year in a retirement account, how much would you have:
Here we have to find out the compounded value of annuity
F=A*((1+r)^n-1)/r
F=Future value, ...

Solution Summary

783 words explain how to find the return on an investment in 2 years time.

$2.19