FIN 3715 Exam Questions and Answers Rated A+

You have just taken out a five-year loan from a bank to buy an engagement ring. The ring costs $5,500. You plan to put down $1,200 and borrow $4,300. You will need to make annual payments of $1,100 at the end of each year. Show the timeline of the loan from your perspective. How would the timeline differ if you created it from the bank's perspective? 0($4300)-1(-$1,100)-2(-$1,100)-3(-$1,100)-4(-$1,100)-5(-$1,100) 0(-$4300)-1($1,100)-2($1,100)-3($1,100)-4($1,100)-5($1,100) What is the present value of the following set of cash flows, discounted at 9.4% per year? 1(8),2(19),3(30),4(41),5(52) 1(52),2(41),3(30),4(19),5(8) The present value of the cash flow stream is $107.55, $122.83 Each set contains the same cash flows ($12, $21, $30, $39, $48), so why is the present value different? The present value in part (b) is higher because the larger cash flows occur sooner. If the present value of your payments is equal to or larger than the amount of the loan, you will be able to pay off your loan as planned. The present value of your payments is smaller than the amount of the loan, so you will not be able to pay off the loan. equal to then you will be able to pay loan smaller than you will not be able to pay loan You currently have a one-year-old loan outstanding on your car. You make monthly payments of $200. You have just made a payment. The loan has four years to go (i.e., it had an original term of five years). Show the timeline from your perspective. How would the timeline differ if you created it from the bank's perspective? your perspective: 0= nothing 1= −$200 2= −$200 3= −$200 4= −$200 48= −$200 banks perspective: 0= nothing 1= 200 2= 200