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Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

III. Valuation of Future Cash Flows

6. Discounted Cash Flow Valuation

© The McGraw-Hill Companies, 2002

PART THREE Valuation of Future Cash Flows hat's On the Web?

6.1 Annuity Future Value The St. Louis Federal Reserve Board has files listing historical interest rates on their web site www.stls.frb.org. Follow the link for "FRED"/data, then "Interest Rates." You will find listings for Moody's Seasoned Aaa Corporate Bond Yield and Moody's Seasoned Baa Corporate Bond Yield. (These rates are discussed in the next chapter.) If you invest $2,000 per year for the next 40 years at the most recent Aaa yield, how much will you have? What if you invest the same amount at the Baa yield?

6.2 Loan Payments Finding the time necessary until you pay off a loan is simple if you make equal payments each month. However, when paying off credit cards many individuals only make the minimum monthly payment, which is generally $10 or 2 percent to 3 percent of the balance, whichever is greater. You can find a credit card calculator at www.fincalc.com. You currently owe $10,000 on a credit card with a 17 percent interest rate and a minimum payment of $10 or 2 percent of your balance, whichever is greater. How soon will you pay off this debt if you make the minimum payment each month? How much total interest will you pay?

6.3 Annuity Payments Go to www.fcfcorp.com/onlinecalc.htm. Use the calculator to solve this problem. If you have $1,500,000 when you retire and want to withdraw an equal amount for the next 30 years, how much can you withdraw each year if you earn 7 percent? What if you earn 9 percent?

6.4 Annuity Payments The St. Louis Federal Reserve Board has files listing historical interest rates on their web site www.stls.frb.org. Follow the link for "FRED"/data, then "Interest Rates." You will find a listing for the Bank Prime Loan Rate. The file lists the monthly prime rate since January 1949 (1949.01). What is the most recent prime rate? What is the highest prime rate over this period? If you bought a house for $150,000 at the current prime rate on a 30-year mortgage with monthly payments, how much are your payments? If you had purchased the house at the same price when the prime rate was its highest, what would your monthly payments have been?

6.5 Loan Amortization CMB Mortgage Services, located at www.cmbmortgage. com, has a financial calculator that will prepare an amortization table based on your inputs. Follow the "Mortgage Calculator" link and then "What are my monthly payments?" link. You want to buy a home for $200,000 on a 30-year mortgage with monthly payments at the rate quoted on the site. What percentage of your first month's payment is principal? What percentage of your last month's payment is principal? What is the total interest paid on the loan?

Spreadsheet Templates 6-1, 6-3, 6-6, 6-10, 6-14, 6-15, 6-17, 6-36, 6-42, 6-45, 6-46, 6-50, 6-66, 6-70, 6-71

Ross et al.: Fundamentals I III. Valuation of Future I 7. Interest Rates and Bond I I © The McGraw-Hill of Corporate Finance, Sixth Cash Flows Valuation Companies, 2002

Edition, Alternate Edition

Ross et al.: Fundamentals I III. Valuation of Future I 7. Interest Rates and Bond I I © The McGraw-Hill of Corporate Finance, Sixth Cash Flows Valuation Companies, 2002

Edition, Alternate Edition

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