FIN 301 – Porter9/16/18

TERMS:

Match the following terms with their corresponding definition

FIN 301 – Porter9/16/18

  1. Annuity Due
  1. Corporation
  1. Finance
  1. Intrinsic Value
  1. Liquidity
  1. Ordinary Annuity
  1. Partnership
  1. Perpetuity
  1. Proprietorship

  1. The estimate of a stock’s ‘true’ value based on accurate risk and return data.
  2. An annuity whose payments occur at the end of each period.
  3. An unincorporated business owned by two or more persons with no income taxes and a limited life.
  4. The ease of selling an asset and converting it to cash at a fair market value.
  5. An annuity whose payments occur at the beginning of each period.
  6. The science of the management of money and other assets
  7. A legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability of ownership, and limited liability.
  8. A stream of equal payments at fixed intervals expected to continue forever.
  9. An unincorporated business owned by one individual with unlimited liability yet easy to form.

FIN 301 – Porter9/16/18

Match the portions of the time line with their location on the time line.

_____ Cash Flow

_____ Period

_____ Interest Rate

Equations:

5 Magic Buttons:

N =

I/Y =

PV =

PMT =

FV =

+ Number =

- Number =

Future Value:

FV =

Rule of 72:

N =

Perpetuity:

PV =

Problems:

  1. Today you invest $10,000 at 8% interest and will contribute $3,500 at the end of each year. How many years will it take for the account to reach $50,000?
  1. You borrow $85,000 and the annual loan payments are $8273.59 for 30 years. What is the interest rate you are being charged?
  1. What is the present value of a security that will pay $5000 in 20 years if it earns a 7% annual rate?
  1. You are trying to save money for your 5-year-old child’s college fund. Today you have $15,000 but you expect their education to cost $120,000 in 13 years when you will need the money. You are investing at a 9% interest rate. What will you have to contribute to the fund each year to reach $120,000?
  1. If you have a perpetuity that pays $300 each month forever at an interest rate of 10% what is the present value of that perpetuity?
  1. What is the future value of a 7%, 5-year ordinary annuity that pays $400 each year?

If this were an annuity due, what would the difference be?