Assignment 1 Time Value Of Money
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2604161-
(Introduction to Finance)
1. You have just calculated the present value of the expected cash flows of a potential investment. Management thinks your figures are too low. Which of the following actions would increase the present value of your cash flows?
a. assume a longer stream of cash flows of the same amount
b. increase the discount rate
c. decrease the discount rate
d. a and c
2. Your bank balance is exactly $10,000. Three years ago you deposited $7,938 and have not touched the account since. What annually compounded rate of interest has the bank been paying?
a. 8.65%
b. 26.00%
c. 8.00%
d. 6.87%
3. A project has a life of ten years starting today. What is the present value today of a
$1,000 annuity that begins at the end of the third year and continues until the end of the tenth year, given a 12% discount rate.
a. $4,811
b. $3,248
c. $4,734
d. $5,650
e. $3,960
4. Which of the following statements is most correct?
a. An investment which compounds interest semiannually, and has a nominal rate of
10 percent, will have an effective rate less than 10 percent.
b. The present value of a three-year $100 annuity due is less than the present value of a three-year $100 ordinary annuity.
c. The proportion of the payment of a fully amortized loan which goes toward interest declines over time.
d. Statements a and c are correct.
e. None of the answers above is correct.
5. If you deposit $3,000 in your bank account at the beginning of each of the next five years (t = 0, t = 1, t = 2, t = 3 and t = 4). You estimate that you can earn 9 percent a year on your investments. How much will you have in your account four years from now (at t = 4)? (Assume that no money is withdrawn from the account until t = 4.)
a. $13,719.39
b. $17,954.13
c. $19,570.00
d. $21,430.45
e. $22,436.12
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1. Exeter Inc. has $75,000 invested in securities that earn a return of 16% compounded quarterly. The company is developing a new product that it plans to launch in two years at a
1
2604161-
(Introduction to Finance)
1. You have just calculated the present value of the expected cash flows of a potential investment. Management thinks your figures are too low. Which of the following actions would increase the present value of your cash flows?
a. assume a longer stream of cash flows of the same amount
b. increase the discount rate
c. decrease the discount rate
d. a and c
2. Your bank balance is exactly $10,000. Three years ago you deposited $7,938 and have not touched the account since. What annually compounded rate of interest has the bank been paying?
a. 8.65%
b. 26.00%
c. 8.00%
d. 6.87%
3. A project has a life of ten years starting today. What is the present value today of a
$1,000 annuity that begins at the end of the third year and continues until the end of the tenth year, given a 12% discount rate.
a. $4,811
b. $3,248
c. $4,734
d. $5,650
e. $3,960
4. Which of the following statements is most correct?
a. An investment which compounds interest semiannually, and has a nominal rate of
10 percent, will have an effective rate less than 10 percent.
b. The present value of a three-year $100 annuity due is less than the present value of a three-year $100 ordinary annuity.
c. The proportion of the payment of a fully amortized loan which goes toward interest declines over time.
d. Statements a and c are correct.
e. None of the answers above is correct.
5. If you deposit $3,000 in your bank account at the beginning of each of the next five years (t = 0, t = 1, t = 2, t = 3 and t = 4). You estimate that you can earn 9 percent a year on your investments. How much will you have in your account four years from now (at t = 4)? (Assume that no money is withdrawn from the account until t = 4.)
a. $13,719.39
b. $17,954.13
c. $19,570.00
d. $21,430.45
e. $22,436.12
1
2
1. Exeter Inc. has $75,000 invested in securities that earn a return of 16% compounded quarterly. The company is developing a new product that it plans to launch in two years at a