Chapter 6, DISCOUNTED CASH FLOW VALUATION Video Solutions, Fundamentals of Corporate Finance

01:16

Problem 1

There are four pieces to an annuity present value. What are they?

Charles Carter

Numerade Educator

01:50

Problem 2

As you increase the length of time involved, what happens to the present value of an annuity? What happens to the future value?

Narayan Hari

Numerade Educator

01:50

Problem 3

What happens to the future value of an annuity if you increase the rate $r$ ? What happens to the present value?

Narayan Hari

Numerade Educator

01:38

Problem 4

What do you think about the Tri-State Megabucks lottery discussed in the chapter advertising a $$\$ 500,000$$ prize when the lump sum option is $$\$ 250,000$$ ? Is it deceptive advertising?

Lourence Gonhovi

Numerade Educator

03:05

If you were an athlete negotiating a contract, would you want a big signing bonus payable immediately and smaller payments in the future, or vice versa? How about looking at it from the team's perspective?

Hossam Mohamed

Numerade Educator

01:59

Problem 6

Suppose two athletes sign 10 -year contracts for $$\$ 80$$ million. In one case, we're told that the $$\$ 80$$ million will be paid in 10 equal installments. In the other case, we're told that the $\$ 80$ million will be paid in 10 installments, but the installments will increase by 5 percent per year. Who got the better deal?

Niamat Khuda

Numerade Educator

01:18

Problem 7

Should lending laws be changed to require lenders to report EARs instead of APRs? Why or why not?

Mihir Nayar

Numerade Educator

01:35

Problem 8

On subsidized Stafford loans, a common source of financial aid for college students, interest does not begin to accrue until repayment begins. Who receives a bigger subsidy, a freshman or a senior? Explain. In words, how would you go about valuing the subsidy on a subsidized Stafford loan?

Lourence Gonhovi

Numerade Educator

04:38

Problem 9

Eligibility for a subsidized Stafford loan is based on current financial need. However, both subsidized and unsubsidized Stafford loans are repaid out of future income. Given this, do you see a possible objection to having two types?

Mukesh Devi

Numerade Educator

Problem 10

A viatical settlement is a lump sum of money given to a terminally ill individual in exchange for his life insurance policy. When the insured person dies, the purchaser receives the payout from the life insurance policy. What factors determine the value of the viatical settlement? Do you think such settlements are ethical? Why or why not?

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01:50

Problem 11

What happens to the future value of a perpetuity if interest rates increase? What if interest rates decrease?

Narayan Hari

Numerade Educator

01:18

Problem 12

In the chapter, we gave several examples of so-called payday loans. As you saw, the interest rates on these loans can be extremely high and are even called predatory by some. Do you think such high interest loans are ethical? Why or why not?

Xiaomin Bian

Numerade Educator

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