| Finance Quiz!!! (Can You Handle It?!?) |
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Dr. Moolah
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| Finance Quiz!!! (Can You Handle It?!?) |
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Lets see if you guys can answer these several finance questions, not only answer but show how you did it...
(ok ok... its actually a couple questions from my homework, would appreciate any help, thanks.)
1. You borrow $50,000 and will make monthly payments for 2 years at 12% interest. How much will those payments be?
2. If an investor bought stock for $10, held it for ten years, and then sold it for $23.67, what was the return on the investment?
3. $1,000 today plus $2,000 each year grows to how much in ten years at 10%?
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Tue Mar 07, 2006 6:48 am |
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Andrew
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LOL. 
Maybe offer a prize!
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Tue Mar 07, 2006 7:56 am |
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Dr. Moolah
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quote:
Originally posted by muneepenee
1. 2,353.67 $/month (assuming yu pae off the lone in 2 yrs)
look in books tu find "present value av an annuity"
morgage is same as immediate annuity, oenlee dif is wich wae the munee flo.
2. rasheeo=23.67/10=2.367...thus total retern=136.7%
over 10 yrs...take 0.1 power av 2.367..
in other werds, if kompound evree yeer over 10 yrs
x raesed tu 10=2.367
take 1/10th root av both sides...x=(2.367)**1/10
anser=1.089983254
thus yu get 8.998%/yeer
if it kompound evree month, yu get less %/month retern
(120 time steps insted av 10)
x=(2.367)**0.0083333=1.007206
get 0.726%/month=8.647%/yeer
3. 37,656.07$ this assume yeer kompound. & yu put in the first 2000$ on dae 0.
if add the yeerlee 2000$ at the end av eech yeer, the anser is less.
if yer akkount kompound month insted av yeer, hav more $.
Do you have to write like that? Thanks for the help, thing is it is difficult to read it.
I did try using the present value annuity formula on number one. This is how I filled out the equation...
1 - [1/(1.01)^24] / .01 x 50,000 = answer right? Thing is I get a totally different answer....
On number 2, the words beat me 
On number 3, I know I have to use the future value annuity formula, thing is I dont know what to do with the initial 1,000 that we invest in the beginning.
Thanks.
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Tue Mar 07, 2006 5:39 pm |
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Dr. Moolah
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quote:
Originally posted by coaster
1. Here's an amortization formula: http://www.hughchou.org/calc/formula.html
Or you can use Excel's PMT function.
2. Are you looking for simple average annual return? That would be ((23.67/10)-1)/10. Or do you want compound return? That's more complicated: http://invest-faq.com/articles/analy-comp-return.html
3. You need to specify when the $2000 is added: at the beginning of the year or at the end of the year. Here's EOY:
(BOY Value + 2000)*.10 + (BOY Value + 2000) = EOY Value
New BOY Value = Previous EOY Value
1. how would the equation look like? So we dont use any of the time value formulas such as future or present formulas or annuity formulas, we use the amortization formula? How would the equation look like?
2. compound return
3. its an ordinary annuity so at the end of the year...
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Tue Mar 07, 2006 9:58 pm |
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Dr. Moolah
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| Re: Finance Quiz!!! (Can You Handle It?!?) |
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quote:
Originally posted by Dr. Moolah
Lets see if you guys can answer these several finance questions, not only answer but show how you did it...
(ok ok... its actually a couple questions from my homework, would appreciate any help, thanks.)
1. You borrow $50,000 and will make monthly payments for 2 years at 12% interest. How much will those payments be?
2. If an investor bought stock for $10, held it for ten years, and then sold it for $23.67, what was the return on the investment?
3. $1,000 today plus $2,000 each year grows to how much in ten years at 10%?
Wait, I think I have solved 2 of these questions. Correct me if im wrong on either the work or the answer or both. Thanks...
On number 2
2. I used this formula, I simply divided 23.67 by 10 which gave me 2.367 and I rooted it to the .1 so it looked like this
23.67 / 10 = 2.367^.1 = 1.0899 and just move the decimal place 2 times to the right and forget about the 1? so it should be 8.99% right?
I learned how to do it off of the site you gave me coaster, thing is I dont get why its done like that and how could you just forget the 1 but atleast I learned how to do it.
3. You just do the future value of the 1000 dollars
1,000(1.1)^10 = 2593.74
Then you do the Future Value Annuity Formula on the 2000 dollars
(1.1)^10 -1 / .1 x 2000 = 31,874.85
then just add 2593.74 + 31,874.85 = 34,468.59 right?
I still trying to figure out number 1....
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Tue Mar 07, 2006 10:30 pm |
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Dr. Moolah
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quote:
Originally posted by coaster
Heh heh ... caught me somewhat with me pants down. I have the actual formual for compound return SOMEWHERE, but can't find it right now. Actually, I just normally use spreadsheet functions. Oh my, when you don't use your brain it just turns to mush. That's what computers have done for us. 
Your compound formula must be right because if you work it forward, using 8.99% annual return, 10 years of that turns $10 into $23.65. Again, thank you Excel.
And I'd just do the same for the future value....just work it forward year by year with the formula I gave....or use a spreadsheet function.
As far as the WHY of mathematics, I never was too big on that. I was only good at plugging things into where they went; not on understanding why they went there. 
hehehe, I know how to plug in all the functions (PMT, FV, PV, I etc) to get the answer on excel or on a financial calculator, thing is I wanted to learn how to do it by hand to learn the roots to understanding the problem more...
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Wed Mar 08, 2006 12:47 am |
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Dr. Moolah
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On number 2, we devide 23.67 by 10 so we get 2.367 and then root it to the .1 because it is ten years right??? Say if it was eleven years, we would root it to the .11?
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Wed Mar 08, 2006 9:45 pm |
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Dr. Moolah
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quote:
Originally posted by coaster
I suspect you take the root because compounding is a logarithmic property. Don't quote me on it....the details are pretty fuzzy this many years later. But it's easy to try out -- just run several trials of different time periods and run your calculations year by year from year 1 to year n. If the answer comes out to within rounding errors, then it must be a workable formula.
hmm, thing is lets say I change number two a little bit...
2. If an investor bought stock for $10, held it for ten years, and then sold it for $23.67, what was the return on the investment?
ok I get how to solve it by doing this
23.67/10 = 2.367^.1 = 8.99%
Now if I change it a little bit by saying I held for for 11 years instead of 10
23.67/10 = 2.367^.11 = 9.94% ?!?!
Umm, im guessing its wrong because if it was an extra year, wouldnt the interest be a little less do to an extra year of compounding???
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Wed Mar 08, 2006 9:58 pm |
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Dr. Moolah
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quote:
Originally posted by coaster
quote:
Originally posted by Dr. Moolah
Now if I change it a little bit by saying I held for for 11 years instead of 10
23.67/10 = 2.367^.11 = 9.94% ?!?!
You also have to divide by 11 
???
Dont you divide by ten in the original equation because you bought the stock at 10 dollars???
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Wed Mar 08, 2006 11:43 pm |
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Dr. Moolah
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quote:
Originally posted by coaster
AH HA!!! The light went on in the shower (as usual) and it turns out I was half right -- just dividing by 11 in the wrong place . If your exponent is 1/10 = 0.10 for 10 years, then it has to be 1/11 = .090909 for 11 years, or 1/n for n years. Try it -- it works!!
You a genius! Great job, I was really stressing over that.... Now onto number 1.....
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Thu Mar 09, 2006 4:38 am |
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Dr. Moolah
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has anyone figured out how to do number one yet?
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Sun Mar 19, 2006 4:58 am |
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Dr. Moolah
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quote:
Originally posted by sarah
Another kid doing his homework here? Sweetie, time to use that text and calculator. If we give you the answers, we aren't helping you. *LOL*
Sarah, not to be mean or anything but it seems to me you spend a great deal of time on this forum everyday, you might as well read the whole thread before succumbing to conclusions... Thanks.
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Tue Mar 21, 2006 2:40 am |
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