25 May Question P3-21. Find the present value of a 3-year, $20,000 ordinary annuity deposited into an
Question
P3-21. Find the present value of a 3-year, $20,000 ordinary annuity deposited into an account that pays 12 percent interest, compounded monthly. Solve for the present value of the annuity in the following ways:
a. As three single cash flows discounted at the stated rate of interest
b. As three single cash flows discounted at the appropriate effective rate of interest
c. As a 3-year annuity discounted at the effective rate of interest
P3-22. Answer parts a–c for each of the following cases. Answer parts a–c for each of the following cases.
| Case | Amount of Initial Deposit ($) | Stated Annual Rate, r(%) | Compounding Frequency, m (times/year) | Deposit Period (years) |
| A | 2,500 | 6 | 2 | 5 |
| B | 50,000 | 12 | 6 | 3 |
| C | 1,000 | 5 | 1 | 10 |
| D | 20,000 | 16 | 4 | 6 |
a. Calculate the future value at the end of the specified deposit period.
b. Determine the effective annual rate (EAR).
c. Compare the stated annual rate (r) to the effective annual rate(EAR). What relationship exists between compounding frequency and the stated and effective annual rates?
P3-23. John Tye has just been hired as the new corporate finance analyst at I-Ell Enterprises and has received his first assignment. John is to take the $25 million in cash received from a recent divestiture and use part of these proceeds to retire an outstanding $10 million bond issue and the remainder to repurchase common stock. However, the bond issue cannot be retired for another two years. If John can place the funds necessary to retire this $10 million debt into an account earning 6 percent compounded monthly, how much of the $25 million remains to repurchase stock?
P3-24. Jason Spector has shopped around for the best interest rates for his investment of $10,000 over the next year. He has found the following:
| Stated Rate | Compounding |
| 6.10% | Annual |
| 5.90% | Semiannual |
| 5.85% | Monthly |
a. Which investment offers Jason the highest effective rate of return?
b. Now, assume that Jason wishes to invest his money for only six months and the annual compounded rate of 6.10 percent is not available. Which of the remaining investments should Jason choose?
P3-25. Tara Cutler is newly married and is now preparing a surprise gift of a trip to Europe for her husband on their tenth anniversary. Tara plans to invest $5,000 per year until that anniversary and plans to make her first $5,000 investment on their first anniversary. If she earns an 8 percent rate on her investments, how much will she have saved for their trip if the interest is compounded in each of the following ways?
a. Annually
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.