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PART THREE Valuation of Future Cash Flows

$1,000 in seven years, assuming no withdrawal penalties, how much will you have after eight years if the interest rate is 7 percent? What is the present value of these cash flows?

6.3 Annuity Present Value You are looking into an investment that will pay you $12,000 per year for the next 10 years. If you require a 15 percent return, what is the most you would pay for this investment?

6.4 APR versus EAR The going rate on student loans is quoted as 8 percent APR. The terms of the loans call for monthly payments. What is the effective annual rate (EAR) on such a student loan?

6.5 It's the Principal That Matters Suppose you borrow $10,000. You are going to repay the loan by making equal annual payments for five years. The interest rate on the loan is 14 percent per year. Prepare an amortization schedule for the loan. How much interest will you pay over the life of the loan?

6.6 Just a Little Bit Each Month You've recently finished your MBA at the Dar-nit School. Naturally, you must purchase a new BMW immediately. The car costs about $21,000. The bank quotes an interest rate of 15 percent APR for a 72-month loan with a 10 percent down payment. You plan on trading the car in for a new one in two years. What will your monthly payment be? What is the effective interest rate on the loan? What will the loan balance be when you trade the car in?

Answers to Chapter Review and Self-Test Problems

## Student Loan Repayment Tips

Student Loan Repayment Tips for the Life of Your Loans. It is often said that the most effective debt management strategy is to be debt-free. But, in order to pay for your college education, you may need to take out student loans.

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