Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 4, Problem 73QP
Summary Introduction
To compute: The
Introduction:
The future sum of money worth today is described by the present value. The perpetuity is the
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The present value of a perpetuity is equal to the payment on the annuity, PMT, divided bythe interest rate, I : PV = PMT/I. What is the future value of a perpetuity of PMT dollars peryear? (Hint: The answer is infinity, but explain why.)
Chapter 4 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 4 - Prob. 1CQCh. 4 - Prob. 2CQCh. 4 - Prob. 3CQCh. 4 - Prob. 4CQCh. 4 - Time Value On subsidized Stafford loans, a common...Ch. 4 - Prob. 6CQCh. 4 - Prob. 7CQCh. 4 - Prob. 8CQCh. 4 - Prob. 9CQCh. 4 - Prob. 10CQ
Ch. 4 - Simple Interest versus Compound Interest First...Ch. 4 - Prob. 2QPCh. 4 - Prob. 3QPCh. 4 - Prob. 4QPCh. 4 - Prob. 5QPCh. 4 - Prob. 6QPCh. 4 - Calculating Present Values Imprudential, Inc., has...Ch. 4 - Calculating Rates of Return Although appealing to...Ch. 4 - Perpetuities An investor purchasing a British...Ch. 4 - Prob. 10QPCh. 4 - Prob. 11QPCh. 4 - Prob. 12QPCh. 4 - Calculating Annuity Present Value An investment...Ch. 4 - Calculating Perpetuity Values The Perpetual Life...Ch. 4 - Calculating EAR Find the EAR in each of the...Ch. 4 - Calculating APR Find the APR, in each of the...Ch. 4 - Calculating EAR First National Bank charges 10.3...Ch. 4 - Interest Rates Well-known financial writer Andrew...Ch. 4 - Calculating Number of Periods One of your...Ch. 4 - Prob. 20QPCh. 4 - Prob. 21QPCh. 4 - Simple Interest versus Compound Interest First...Ch. 4 - Calculating Annuities You are planning to save for...Ch. 4 - Prob. 24QPCh. 4 - Prob. 25QPCh. 4 - Prob. 26QPCh. 4 - Prob. 27QPCh. 4 - Annuity Present Values What is the present value...Ch. 4 - Annuity Present Values What is the value today of...Ch. 4 - Balloon Payments Audrey Sanborn has just arranged...Ch. 4 - Prob. 31QPCh. 4 - Prob. 32QPCh. 4 - Growing Annuity Southern California Publishing...Ch. 4 - Growing Annuity Your job pays you only once a year...Ch. 4 - Prob. 35QPCh. 4 - Prob. 36QPCh. 4 - Prob. 37QPCh. 4 - Calculating Loan Payments You need a 30-year,...Ch. 4 - Prob. 39QPCh. 4 - Calculating Present Values You just won the TVM...Ch. 4 - Prob. 41QPCh. 4 - Prob. 42QPCh. 4 - Prob. 43QPCh. 4 - Prob. 44QPCh. 4 - Prob. 45QPCh. 4 - Prob. 46QPCh. 4 - Prob. 47QPCh. 4 - Prob. 48QPCh. 4 - Prob. 49QPCh. 4 - Prob. 50QPCh. 4 - Calculating Annuities Due You want to lease a set...Ch. 4 - Prob. 52QPCh. 4 - Prob. 53QPCh. 4 - Prob. 54QPCh. 4 - Prob. 55QPCh. 4 - Prob. 56QPCh. 4 - Prob. 57QPCh. 4 - Prob. 58QPCh. 4 - Prob. 59QPCh. 4 - Prob. 60QPCh. 4 - Prob. 61QPCh. 4 - Prob. 62QPCh. 4 - Prob. 63QPCh. 4 - Prob. 64QPCh. 4 - Calculating the Number of Periods Your Christmas...Ch. 4 - Prob. 66QPCh. 4 - Prob. 67QPCh. 4 - Prob. 68QPCh. 4 - Prob. 69QPCh. 4 - Perpetual Cash Flows What is the value of an...Ch. 4 - Prob. 71QPCh. 4 - Prob. 72QPCh. 4 - Prob. 73QPCh. 4 - Prob. 74QPCh. 4 - Rule or 69.3 A corollary to the Rule of 72 is the...Ch. 4 - Prob. 1MCCh. 4 - Prob. 2MCCh. 4 - Prob. 3MCCh. 4 - Prob. 4MCCh. 4 - Prob. 5MCCh. 4 - Prob. 6MC
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- The present value of an annuity is the amount needed now so that desired annuity payments may be made in the future. In this scenario annuity payments will be made at the beginning of each month. Thus, this is an annuity due. To find the present value of this annuity, the amount of money that should be deposited in an account now, the interest rate per period must first be found. The interest rate per period is calculated using the nominal, or annual, rate and the number of periods per year as follows. interest rate per period = nominal rate periods per year The rate was given to be 6%. Interest is compounded monthly, or 12 times per year. Find the interest rate per period. interest rate per period = nominal rate periods per year = % 12 = % The total number of compounding periods will be 1 less than the number of years annuity payments will be made multiplied by the number of compounding periods per year. There are 12…arrow_forwardWhich of the following changes would increase the present value of a future payment? (check all that apply) Decrease in the number of years until the future payment is received Increase in the interest rate Increase in the amount of the payment Decrease in the interest rate Increase in the number of years until the future payment is receivedarrow_forwardListen The future value of an annuity due is: one period after the final payment. one period before the final payment. at the same point in time as the final payment.arrow_forward
- Increasing the number of periods will increase all of the following except: Select one: A. The present value of an annuity B. The present value of $1 C. The future value of $1 D. The future value of an annuityarrow_forwardThe present value of an ordinary annuity, PAN, is the value today that would be equivalent to the annuity payments (PMT) received at fixed intervals over the annuity period. The equation is: Each payment of an annuity due is discounted for one less (1 + I). The equation is: PVAN= PMT 1- (1+1)N I period, so the present value of an annuity due is equal to the present value of an ordinary annuity multiplied by PVA due PVA ordinary (1+1) One can solve for payments (PMT), periods (N), and interest rates (I) for annuities. The easiest way to solve for these variables is with a financial calculator or a spreadsheet. Quantitative Problem 1: You plan to deposit $1,700 per year for 5 years into a money market account with an annual return of 2%. You plan to make your first deposit one year from today. a. What amount will be in your account at the end of 5 years? Do not round intermediate calculations. Round your answer to the nearest cent. $ b. Assume that your deposits will begin today. What…arrow_forwardFuture value for an ordinary annuity and annuity due will be exactly the same if the investment horizon is exactly one year. Group of answer choices True Falsearrow_forward
- In the present value of an annuity due table, the factors ________. Group of answer choices decrease as the interest rates increase, given a set number of periods decrease as the periods increase, given a set interest rate increase as the periods decrease, given a set interest rate increase as the interest rates increase, given a set number of periodsarrow_forward1. The future value of an ordinary annuity of n > 2 payments of R > 0 with periodic interest rate r >0 is the sum of all payments taken at the end of the term of the annuity.arrow_forwardPV = Cash Flow/Interest Rate is the present value shortcut formula for which of the following: * A perpetuity A single cash flow in the future A growing perpetuity An annuityarrow_forward
- Increasing the number of periods will increase all of the following except Select one: a. the present value of $1. b. the future value of an annuity. c. the future value of $1.arrow_forward4. The present value of a growing perpetuity, with cash flow C1 occurring one year from now, is given by: [C1/(r - g)], where r > g. True or False ? 5. An equal-payment home mortgage is an example of an annuity. True or False?arrow_forward
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