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Calculator Problems

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13 views8 pages

Calculator Problems

Uploaded by

sara2097
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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SAMPLE PROBLEMS

This section provides keystroke solutions for selected problems from the text
illustrating the nine basic financial calculator skills.

1. FUTURE VALUE OR PRESENT VALUE


OF A SINGLE SUM
Compute the future value of $2,250 at a 17 percent annual rate for 30 years.

The future value is $249,895.46.

2. PRESENT VALUE OR FUTURE VALUE OF AN


ORDINARY ANNUITY
Betty's Bank offers you a $20,000, seven-year term loan at 11 percent annual interest.
What will your annual loan payment be?

Your annual loan payment will be $4,244.31.


3. FINDING AN UNKNOWN INTEREST
RATE
Assume that the total cost of a college education will be $75,000 when your
child enters college in 18 years. You presently have $7,000 to invest. What rate
of interest must you earn on your investment to cover the cost of your child's
college education?

You must earn an annual interest rate of at least 14.08 percent to cover the
expected future cost of your child's education.

4. FINDING AN UNKNOWN NUMBER OF


PERIODS
One of your customers is delinquent on his accounts payable balance. You've
mutually agreed to a repayment schedule of $374 per month. You will charge 1.4
percent per month interest on the overdue balance. If the current balance is
$12,000, how long will it take for the account to be paid off?

The loan will be paid off in 42.90 months.


5. SIMPLE BOND PRICING
Mullineaux Co. issued 11-year bonds one year ago at a coupon rate of 8.25
percent. The bonds make semiannual payments. If the YTM on these bonds is
7.10 percent, what is the current bond price?

Because the bonds make semiannual payments, we must halve the coupon
payment (8.25 ÷ 2 = 4.125 ==> $41.25), halve the YTM (7.10 ÷ 2 ==> 3.55),
and double the number of periods (10 years remaining X 2 = 20 periods).
Then, the current bond price is $1,081.35.

6. SIMPLE BOND YIELDS TO MATURITY


Vasicek Co. has 12.5 percent coupon bonds on the market with eight years left to
maturity. The bonds make annual payments. If one of these bonds currently sells
for $1,145.68, what is its YTM?

The bond has a yield to maturity of 9. 79 percent.


7. CASH FLOW ANALYSIS
What are the IRR and NPV of the following set of cash flows? Assume a discount
rate of 10 percent.

The project has an IRR of 17.40 percent and an NPV of $213.15.


8. LOAN AMORTIZATION
Prepare an amortization schedule for a three-year loan of $24,000. The
interest rate is 16 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?
To prepare a complete amortization schedule, you must amortize each payment
one at a time:
Interest of $1,473.96 is paid in the third year.
Enter both a beginning and an ending period to compute the total amount of interest or
principal paid over a particular period of time.
Total interest of $8,058.57 is paid over the life of the loan.
9. INTEREST RATE CONVERSIONS
Find the effective annual rate, EAR, corresponding to a 7 percent annual percentage rate,
APR, compounded quarterly.

The effective annual rate equals 7.19 percent.

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