FIN 301 – Porter 4/26/18

TERMS: Match the following terms with their corresponding definition

B. The estimate of a stock’s ‘true’ value

based on accurate risk and return data.

1. Annuity Due C. An annuity whose payments occur at the end

of each period.

2. Corporation D. An unincorporated business owned by two or

more persons with no income taxes and a

3. Finance limited life.

E. The ease of selling an asset and converting it

4. Intrinsic Value to cash at a fair market value.

F. An annuity whose payments occur at the

5. Liquidity beginning of each period.

G. The science of the management of money and

6. Ordinary Annuity other assets

H. A legal entity created by a state, separate and

7. Partnership distinct from its owners and managers,

having unlimited life, easy transferability of

8. Perpetuity ownership, and limited liability.

I. A stream of equal payments at fixed intervals

9. Proprietorship expected to continue forever.

A. J. An unincorporated business owned by one

individual with unlimited liability yet easy to

form. FIN 301 – Porter 4/26/18

Match the portions of the time line with their location on the time line. _____ Cash Flow A A A _____ Period B _____ Interest Rate

C C C

Equations:

5 Magic Buttons:

N =

I/Y =

PV =

PMT =

FV =

+ Number =

- Number =

Future Value:

FV =

Rule of 72:

N =

Perpetuity:

PV = FIN 301 – Porter 4/26/18

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?

2. You borrow $85,000 and the annual loan payments are $8273.59 for 30 years. What is the interest rate you are being charged? FIN 301 – Porter 4/26/18

3. What is the present value of a security that will pay $5000 in 20 years if it earns a 7% annual rate?

4. 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? FIN 301 – Porter 4/26/18

5. 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?

6. 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? FIN 301 – Porter 4/26/18