Texts: ts
Due Monday by 11:59pm
Points 10
Submitting a text entry box or a file upload
Assignment Questions: Critical Thinking Questions: 1. Present Value [LO1] 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? 2. Present Value [LO1] 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?
Questions and Problems:
1. Calculating Perpetuity Values [LO1] The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $35,000 per year forever. If the required return on this investment is 4.7 percent, how much will you pay for the policy?
2. Calculating Perpetuity Values [LO1] In the previous problem, suppose a sales associate told you the policy costs $800,000. At what interest rate would this be a fair deal?
3. Growing Annuity [LO] You have just won the lottery and will receive $1,500,000 in one year. You will receive payments for 0 years, and the payments will increase by 2.7 percent per year. If the appropriate discount rate is 6.8 percent, what is the present value of your winnings?
4. Amortization with Equal Payments [LO3] Prepare an amortization schedule for a five-year loan of $71,500. The interest rate is 7 percent per year, and the loan calls for equal annual payments. How much interest is paid in the third year? How much total interest is paid over the life of the loan?
5. Amortization with Equal Principal Payments [LO3] Rework Problem 4 assuming that the loan agreement calls for a principal reduction of $14,300 every year instead of equal annual payments.
