If your opportunity cost is 12%, how much will you pay for a bond that pays $100 per year forever?

If your opportunity cost is 12%, how much will you pay for a bond that pays $100 per year forever?

Answer:  PV = $100/.12 = $833.33

What is the present value of the following perpetuities?

a.    $600 discounted at 7%

b.    $450 discounted at 12%

c.     $1,000 discounted at 6%

d.    $880 discounted at 9%

Answer: 

a.     PV = $600/.07

        PV = $8,571.43

b.    PV = $450/.12

        PV = $3,750

c.     PV = $1,000/.06

        PV = $16,666.67

d.    PV = $880/.09

        PV = $9,777.78

What is the value on 1/1/14 of the following cash flows? Use a 10% discount rate, and round your answer to the nearest $1.00.

Date Cash Received         Amount of Cash

          1/1/16                                     $100

          1/1/17                                     $200

          1/1/18                                     $300

          1/1/19                                     $400

          1/1/20                                     $500

A) $1,500

B) $880

C) $968

D) $1,065

Consider the following cash flows:

Date Cash Received         Amount of Cash

          1/1/15                                     $100

          1/1/16                                     $100

          1/1/17                                     $500

          1/1/18                                     $100

What is the value on 1/1/14 of the above cash flows? Use an 8% discount rate, and round your answer to the nearest $1.00.

A) $649

B) $601

C) $740

D) $800

If you put $200 in a savings account at the beginning of each year for 10 years and then allow the account to compound for an additional 10 years, how much will be in the account at the end of the 20th year? Assume that the account earns 10%, and round to the nearest $10.

A) $8,300

B) $9,100

C) $8,900

D) $9,700

What is the present value of an annuity of $100 received at the end of each year for seven years?

What is the present value of an annuity of $100 received at the end of each year for seven years? The first payment will be received one year from today (round to nearest $10). The discount rate is 13%.  To solve this problem with a financial calculator, the correct choice is

A) N=7, i=13, PMT= 100, FV=0, solve for PV

B) N=7, i=13, PV= 100, FV=0, solve for FV

C) N=7, i=13, PMT= 100, FV=100, solve for PV

D) N=7, i=.13, PMT= 100, FV=0, solve for PV

What is the present value of an annuity of $27 received at the beginning of each year for the next six years? The first payment will be received today, and the discount rate is 10% (round to nearest $10).

A) $120

B) $130

C) $100

D) $110

What is the present value of $150 received at the beginning of each year for 16 years? The first payment is received today. Use a discount rate of 9%, and round your answer to the nearest $10.

A) $1,360

B) $1,480

C) $1,250

D) $1,210

What is the present value of $250 received at the beginning of each year for 21 years? Assume that the first payment is received today. Use a discount rate of 12%, and round your answer to the nearest $10.

A) $1,870

B) $2,090

C) $2,117

D) $3,243

What is the present value of an annuity of $12 received at the end of each year for seven years? Assume a discount rate of 11%. The first payment will be received one year from today (round to the nearest $1).

A) $25

B) $40

C) $57

D) $118