Assignment 4 by lifemate


									                                     010.212 Interest Theory (3)
                     Fall 2001 – Monday and Wednesday – 4:00PM to 5:15PM
                                            Assignment 4
                                       Due: October 15th, 2001
Questions 1 to 6 are worth .2 marks; questions 7 and 8 are worth .4 marks.

1) A company, whose stock you wish to purchase, has an annual dividend of $2.00 per share. The
   next dividend is payable in 1 year. You expect the dividend to continue at that level forever. If you
   want a return of 15%, what should you pay for 1,000 shares of the company?

                        an|  10.00               a2 n|  15.00                   a4n|
2) You are given that                       and                        .   Find          .

3) You used $10,000 to purchase an immediate annuity that it to make payments to you for
   10 years – your expected yield on this purchase was 6.5%. What is the annual payment
   you will receive?

4) You are able to deposit $100 into a savings fund at the end of each month. At the end of
   15 years, you wish to have a fund equal to $30,000. What effective annual yield must you
   get on the fund to meet your goal?

5) A 14 year annuity-due provides payments of $700 each month. At 6% annual interest,
   what is the accumulated value of these payments 5 years after the final payment?

6) One annuity pays 4 at the end of each year for 36 years. Another annuity pays 5 at the
   end of each year for 18 years. The present values of both annuities are equal at the
   effective rate of i. What is the present value of these annuities?

7) At a certain interest rate, the present values of the following two payment patterns are
              i)     400 at the end of 5 years plus 700 at the end of 10 years
              ii)    876.41 at the end of 5 years
   At that same interest rate, 100 invested now plus 120 invested at the end of 5 years will
accumulate to Z at the end of 10 years. Find Z.

8) You use $15,000 of your funds to purchase a 20 year immediate annuity with monthly
payments that yield you 6.5% effective annual. Immediately after the 72 nd payment, you sell
the remaining payments for their present value calculated at 5% effective annual. What
amount do you receive at that time?

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