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Chapter 4: 25BP (page 283)
Juan Garza invested $20,000 10 years ago at 12 percent, compounded quarterly. How much has he accumulated?
The accumulated value is $65,240.76.
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Does inflation have anything to do with making a dollar today worth more than a dollar tomorrow?
Larry Davis borrows $80,000 at 14 percent interest toward the purchase of a home. His mortgage is for 25 years.
a.How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.)
b.How much interest will he pay over the life of the loan?
c.How much should he be willing to pay to get out of a 14 percent mortgage and into a 10 percent mortgage with 25 years remaining on the mortgage?
Assume current interest rates are 10 percent. Carefully consider the timeb value of money. Disregard taxes.
Carrie Tune will receive \(19,500 for the next 20 years as a payment for a new song she has written. If a 10 percent rate is applied, should she be willing to sell out her future rights now for \)160,000?
Your father offers you a choice of \(105,000 in 12 years or \)47,000 today. a. If money is discounted at 8 percent, which should you choose?
Question:Ecology Labs Inc. will pay a dividend of \(6.40 per share in the next 12 months (D1). The required rate of return (Ke) is 14 percent and the constant growth rate is 5 percent.
a. Compute P0. (For parts b, c, and d in this problem, all variables remain the same except the one specifically changed. Each question is independent of the others.)
b. Assume Ke, the required rate of return, goes up to 18 percent. What will be the new value of P0?
c. Assume the growth rate (g) goes up to 9 percent. What will be the new value of P0? Ke goes back to its original value of 14 percent.
d. Assume D1 is \)7.00. What will be the new value of P0? Assume Ke is at its original value of 14 percent and g goes back to its original value of 5 percent.
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