An investment will pay $500 in three years, $700 in five years, and $1,000 in nine years. If the opportunity rate is 6%

An investment will pay $500 in three years, $700 in five years, and $1,000 in nine years. If the opportunity rate is 6%, what is the present value of this investment?

Answer: 

PV = $500(1/(1.06)3) + $700(1/1.06)5) + $1000(1/(1.06)9)

PV = $500(.840) + $700(.747) + $1000(.592)

       = $420.00 + $522.90 + $592.00

       = $1,534.90

What is the value (price) of a bond that pays $400 semiannually for 10 years and returns $10,000 at the end of 10 years? The market discount rate is 10% paid semiannually.

Answer:  Using a financial calculator N=20, i=5, PMT=400, FV=10000, solve for PV=-5361.77 or $5,361.77

The expected after-tax cash flow from an investment property that you are considering is

Year 1   $25,000

Year 2   $27,500

Year 3   $30,250

At the end of year 3 you expect to sell the property for $400,000.  If the appropriate discount rate is 12%, what is the most you should pay for this property?

Answer:  [25000/(1.12)1 + 27500/(1.12)2 + 302500/(1.12)3 + 400000/(1.12)3] = $350,487.71

In order to send your oldest child to law school when the time comes, you want to accumulate $40,000 at the end of 18 years. Assuming that your savings account will pay 6% compounded annually, how much would you have to deposit if:

a. you want to deposit an amount annually at the end of each year?

b. you want to deposit one large lump sum today?

Answer: 

a. PMT = $1,294.26

b. PMT = $14,013.75

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

Three years from now, Barbara Waters will purchase a laptop computer that will cost $2,250. Assume that Barbara

Three years from now, Barbara Waters will purchase a laptop computer that will cost $2,250. Assume that Barbara can earn 6.25% (compounded monthly) on her money. How much should she set aside today for the purchase? Round off to the nearest $1.

A) $1,250

B) $900

C) $1,866

D) $3,775

If you want to have $875 in 32 months, how much money must you put in a savings account today? Assume that the savings account pays 16% and it is compounded monthly (round to the nearest $10).

A) $630

B) $570

C) $650

D) $660

Which of the following is the formula for present value?

A) FVn = P(1 + i)n 

B) FVn = (1 + i)/P

C) FVn = P/(1 + i)n 

D) FVn = P(1 + i)-n 

All else constant, the present value of an investment will increase if

A) the investment is discounted at a higher interest rate. 

B) the investment is discounted for fewer years.

C) the investment is discounted at a lower interest rate.

D) both B and C.

Answer:  D

To find the present value of $1000 discounted for 20 years at 8%, when using a financial calculator, the correct entry is

A) N=20, i=.08,PMT = 0, FV=1000 solve for PV

B) N=20, i=8,PMT = 0, FV=1000 solve for PMT

C) N=20, i=.08,PMT = 0, PV=1000 solve for FV

D) N=20, i=8,PMT = 0, FV=1000 solve for PV

When using a financial calculator, which of the following is a correct way to find the future value of $200

When using a financial calculator, which of the following is a correct way to find the future value of $200 deposited today in an account for four years paying annual interest of 2% compounded quarterly?

A) N=16, i=.005, PV=200, PMT=0, solve for FV

B) N=4, i=.5, PV=200, PMT=0, solve for FV

C) N=16, i=.5, PV=-200, PMT=0, solve for FV

D) N=16, i=.03, FV=-200, PMT=0, solve for PV

When using EXCEL to find the future value of $2,000 invested in an account that would earn interest of 7.5% for 18 years, the correct entry would be

A) =FV(7.5,18,0,-1,000)

B) =PV(.075,18,0,-1,000)

C) =FV(7.5,18,0,1,000)

D) =FV(.075,18,0,-1,000)

When using a financial calculator, which of the following is a correct way to find the future value of $200 deposited today in an account for four years paying annual interest of 2% compounded quarterly?

A) N=16, i=.005, PV=-200, PMT=0, solve for FV

B) N=4, i=.5, PV=$200, PMT=0, solve for FV

C) N=16, i=.5, PV=-200, PMT=0, solve for FV

D) N=16, i=.03, FV=200, PMT=0, solve for PV

If you purchased a share of Mico.com stock on March 1, 1993 for $45 and you sold the stock at $168 on February 28, 1998, what was your annual rate of return on the stock?

A) 83%

B) 75%

C) 20%

D) 30%

E) 50%

At 8%, compounded annually, how long will it take $750 to double?

A) 9 years

B) 8 years

C) 12 years

D) 4 years

E) 6 years

The future value of a lump sum deposited today increases as the number of years of compounding at a positive rate of interest declines.

Answer:  FALSE

If we invest money for 10 years at 8% interest, compounded semi-annually, we are really investing money for 20 six-month periods, during which we receive 4% interest each period.

Answer:  TRUE

Determining the specified amount of money that you will receive at the maturity of an investment is an example of a future value equation.

Answer:  TRUE

When performing time value of money computations with a financial calculator or EXCEL, PV and FV must have opposite signs.

Answer:  TRUE

Assuming equal annual rates, the more frequent the compounding periods in a year, the higher the future value.

Answer:  TRUE