Financial Math Answers

Time value—Annuities Marian Kirk wishes to select the better of two 5-year annuities, C and D. Annuity Cis an ordinary annuity of $2,500 per year for 5 years. Annuity D Is an annuity due of $2,200 per year for 5 years.
a. Find the future value of both annuities at the end of year 5, assuming that Marian can earn (1) 10% annual interest and (2) 20% annual interest.
b. Use your findings in part a to indicate which annuity has the greater future value at the end of year 5 for both the (1) 10% and (2) 20% Interest rates.
c. shows the future value of ordinary and due through time line on the above solutions.

Your firm is one of the largest bakery’s in the area. As part of your risk management process, you are considering using options to hedge the price risk on your biggest input – wheat. You have determined that a price of R52/per ton would allow for you to keep the same profit margin as last year. The following wheat options offer a strike price of R50/per ton expiring in 1 month:
 Call options on wheat are selling at a premium of R0.87 per ton.
 Put options on wheat are selling for R0.72 per ton.
(a) Given the information above, will you need need a call or a put option?
(b) If each option is for 100 tons, and you require 1000 tons of wheat, demonstrate the outcome if, at expiry, the spot price of wheat is (i) R40 per ton and (ii) R60 per ton.

Equal repayments of K72 are made at the end of each quarter for five years to pay off a loan of K1000. Find the flat rate of interest and the compound rate interest of such a loan repayment, and check that the two interest rates satisfy the formula of this section. Use spread sheet to find the reducing rate

Find the equivalent compound interest rate for a flat rate loan charged at 9.5% p.a., where repayments are to be made quarterly over 2 years. Use trial and error to answer this question

How many monthly deposits of $50 are needed to accumulate $3000 if the interest rate is 3.6% compounded monthly

Esther, Vida, and Clair were asked to consider two different cash flows: GH¢1000 that they could receive today and GH¢3000 that would be received 3 years from today. Esther wanted the GH¢1000 today, Vida chose to collect GH¢3000 in 3 years, and Clair was indifferent between these two options.

Is it more profitable to receive $2000 now or $3400 in 9 years, if the money can earn 6% interest compounded quarterly?

Ricardo is a 30-year-old pack-and -a-half per day smoker who pays $10.49 per pack of cigarettes. Observing an uncle suffering from emphysema, he decides to stop smoking. emphysema, he decides to stop smoking. Assuming an annuity with an interest rate of 5.1% compounded monthly and investing the cost of 45 packs each month.
a) Find the future value when Ricardo is 65
b) Find the amount he can withdraw from his annuity each month for 15 years after he retires.

Womack Toy Company’s stock is currently trading at $25 per share. The stock’s dividend is projected to increase at a constant rate of 7 percent per year. The required rate of return on the stock, Rs, is 10 percent. What is the expected price of the stock 4 years from today?

You’re prepared to make monthly payments of $340, beginning at the end of this month, into an account that pays 6 percent interest compounded monthly. How many payments will you have made when your account balance reaches $20,000?