2016 Spring2 Time Value of Money Instructions Note: Unless otherwise stated, assume that interest is calculated on an annual basis. Leave all answers...

1.

a) Mary has the opportunity to invest $10,000 in a 5 year CD. She has the option to receive a 3.65% return compounded annually; 3.62% compounded quarterly; or 3.60% compounded monthly. What option will give her the highest total return and how much will she receive in 5 years' time?

Also calculate the Effective Annual Rate [EAR] of these of the investment options.

show calculation 

b) Using TVM on the financial calculator and the Rule of 72s, how long will it take a $10,000 investment to double if the interest rate is 6.0%?annualshow calculation 

c)What if the TVM compounding is on a monthly basis? Would your answer be the same? Explain by

 Helen purchases a condo and obtains a $400,000 fully amortizing level payment 30 year mortgage bearing an (annual) fixed interest rate of 6.00% . How much will her monthly blended principal and interest payment be?

Johnson Corp is considering a Capital Expenditure project that will require an initial investment of $200,000. It will have a 5 year lifetime and will return the following amounts at the end of the following years:

Year 1             $20,000

Year 2             $30,000

Year 3             $40,000

Year 4             $50,000

Year 5             $60,000

a)  If at the end of year 5, the project has no salvage value, what is the company's expected annual rate of return (IRR)?

Show work below