A) An account that pays 8% nominal interest with daily (365-day) compounding.
B) An account that pays 8% nominal interest with monthly compounding.
C) An account that pays 8% nominal interest with annual compounding.
D) An account that pays 7% nominal interest with daily (365-day) compounding.
E) An account that pays 7% nominal interest with monthly compounding.
G) A) and D)
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A) Exactly 8% of the first monthly payment represents interest.
B) The monthly payments will decline over time.
C) A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment.
D) The total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity.
E) The amount representing interest in the first payment would be higher if the nominal interest rate were 6% rather than 8%.
G) A) and C)
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A) 8.46%
B) 8.90%
C) 9.37%
D) 9.86%
E) 10.38%
G) A) and D)
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B) False
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A) Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.
B) A time line is not meaningful unless all cash flows occur annually.
C) Time lines are useful for visualizing complex problems prior to doing actual calculations.
D) Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
E) Time lines cannot be constructed for annuities where the payments occur at the beginning of the periods.
G) None of the above
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B) False
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A) If CF0 is positive and all the other CFs are negative, then you cannot solve for I.
B) If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0.
C) If you have a series of cash flows, and CF0 is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost.
D) To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs.This is, essentially, a trial-and-error procedure that is easy with a computer or financial calculator but quite difficult otherwise.
E) If you solve for I and get a negative number, then you must have made a mistake.
G) D) and E)
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A) $1, 994.49
B) $2, 099.46
C) $2, 209.96
D) $2, 326.27
E) $2, 442.59
G) B) and D)
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