UNIT III FINANCIAL MGMT

1. After placing $13,000 in a savings account paying annual compound interest of 3%, Leona will accumulate what amount if she leaves the money in the bank for 4 years?

2. You have just introduced “must have” headphones for the iPod. Sales of the product are expected to be 20,000 units this year and are expected to increase by 16% annually in the future. What are the expected sales in each of the next three years? If the 20,000 units were expected to increase by 18% a year, what are the expected sales next year for this product?

3. What is the present value of a perpetual stream of cash flow that pays $80,000 at the end of one year and grows at a rate of 5% indefinitely? The rate of interest used to discount the cash flows is 10%. What is the present value of the growing perpetuity?

4. To pay for your education, you have taken out $28,000 in student loans. If you make monthly payments over 13 years at 5% compounded monthly, how much are your monthly student loan payments?

5.  How much do you have to deposit today so that, beginning 11 years from now, you can withdraw $9,000 a year for the next 8 years (periods 11 through 18) plus an additional amount of $18,000 in the last year (period 18)? Assume an interest rate of 6%.