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    Corporate Finance

    Uploaded by

    George Young
    1) Mr. Money invested $10 at 5.5% interest 200 years ago, which would be worth $447,189.84 today. 2) Mr. Google needs $10,000 in one year and needs to invest $9,345.79 today at 7% annual interest. 3) To have $150,000 in 17 years for her daughter's college, you need to invest $40,540.34 today at 8% annual interest.

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    Corporate Finance

    Uploaded by

    George Young
    76 views2 pages
    1) Mr. Money invested $10 at 5.5% interest 200 years ago, which would be worth $447,189.84 today. 2) Mr. Google needs $10,000 in one year and needs to invest $9,345.79 today at 7% annual interest. 3) To have $150,000 in 17 years for her daughter's college, you need to invest $40,540.34 today at 8% annual interest.

    Original Description:

    Finance Corporate Finance Managerial Finance Financial Management

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    1) Mr. Money invested $10 at 5.5% interest 200 years ago, which would be worth $447,189.84 today. 2) Mr. Google needs $10,000 in one year and needs to invest $9,345.79 today at 7% annual interest. 3) To have $150,000 in 17 years for her daughter's college, you need to invest $40,540.34 today at 8% annual interest.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    76 views2 pages

    Corporate Finance

    Uploaded by

    George Young
    1) Mr. Money invested $10 at 5.5% interest 200 years ago, which would be worth $447,189.84 today. 2) Mr. Google needs $10,000 in one year and needs to invest $9,345.79 today at 7% annual interest. 3) To have $150,000 in 17 years for her daughter's college, you need to invest $40,540.34 today at 8% annual interest.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    TIME VALUE OF MONEY

    Mr. Money had a relative deposit of $10 at 5.5% interest 200 years ago. How much would the
    investment be worth today?
    Solution:

    $ 447,189.84

    10 x (1.055)200 = $ 447,189.84

    Mr. Google needs $10,000 in one year for the down payment on a new car. If he can earn 7% annually,
    how much does he need to invest today?
    Solution:

    $ 9,345.79

    $ 10,000 / (1.07)1 = $ 9,345.79

    You want to begin saving for your daughters college education and you estimate that she will need
    $150,000 in 17 years. If you feel confident that you can earn 8% per year, how much do you need to
    invest today?
    Solution:

    $ 40,540.34

    $ 150,000 / (1.08)17

    Mr. Investor is looking at an investment that will pay $1,200 in 5 years if he invests $1,000 today. What
    is the implied rate of interest?
    Solution:

    3.714%

    r = (FV / PV) 1/t 1


    r = (1,200/1,000)1/5 1 = .03714

    You are offered an investment that will allow you to double your money in 6 years. You have $10,000 to
    invest. What is the implied rate of interest?
    Solution:

    12.25%

    r = (20,000/10,000)1/6 1 = 0.1225

    Mr. Futuristic has a 1-year old son and he wants to provide $75,000 in 17 years towards his sons college
    education. He currently has $5,000 to invest. What interest rate must he earn to have the $75,000
    when he needs it?
    Solution:

    17.27%

    r = (75,000/5,000)1/17 1 = 0.1727

    Interest Rates & Bond Valuation


    Consider a bond with a coupon rate of 10% and annual coupons. The par value is $1,000 and the bond
    has 5 years to maturity. The yield to maturity is 11%. What is the value of the bond?
    Solution:

    $ 963.04

    B = PV of annuity + PV of lump sum


    B = 100[1 1/(1.11)5]/.11 + 1,000/(1.11)5
    B = 369.59 + 593.45 = 963.04

    Suppose you are looking at a bond that has a 10% annual coupon and a face value of $1000. There are
    20 years to maturity and the yield to maturity is 8%. What is the price of this bond?
    Solution:

    $ 1,196.36

    B = PV of annuity + PV of lump sum


    B = 100[1 1/(1.08)20]/.08 + 1000/(1.08)20
    B = 981.81 + 214.55 = 1196.36

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