Question 1 (10 points):Williams Construction Inc. is building a new facility that will cost $46 million. Williams Construction will borrow $43 million from Bank of America and pay the remainder immediately as a down payment.Williams Construction will pay 8% interest but will make no payment for 4 years, at which time the entire amount will be due.How much will Williams Construction’s payment be?
Question 2 (10points):James Madison is considering a new investment fund with a semiannual interest of 4.0 %.Any money he invests would have to be left in the fund for at least five years if he wanted to withdraw it without penalty.
- What is the nominal interest rate on this investment?
- What is the annual effective interest rate?
- If James deposits $10,000 in the fund now, how much will it be worth in five years?
Question 3 (10 points):Traffic at the Babcock St/University Blvd. intersection is 5000 cars per day.A traffic study by the City of Melbourne indicates that the traffic is expected to grow at a continuous rate of 4% per year.How much traffic will be expected at the end of 5 years?Hint:This is a continuous compounding problem.
Question 4 (10 points):Mike withdrew $1,280 from a savings account and invested in common stock.At the end of 5 years, Mike sold the stock for $1,487.In the savings account he would have received an interest rate of 4%, compounded quarterly.He would like to compute a comparable interest rate on his common stock investment.
- Draw a cash flow diagram for the stock investment.
- What effective annual interest rate did he receive from the stock investment?
- Based on quarterly compounding, what nominal annual interest rate did he receive on his investment in stock?
Question 5 (10 points):Compute the present worth of the following cash flows given an interest of 5%.