You want to travel to Europe to visit relatives when you graduate from college three years from now. The trip is expected to cost a total of $10,000. Your parents have deposited $5,000 for you in a CD paying 6% interest annually, maturing three years from now. Aunt Hilda has agreed to finance the balance. If you are going to put Aunt Hilda's gift in an investment earning 10% annually over the next three years, how much must she deposit now so you can visit your relatives in three years?
A) $3,757
B) $3,039
C) $3,801
D) $3,345
What is the present value of the following uneven stream of cash flows? Assume a 6% discount rate and end-of-period payments. Round to the nearest whole dollar.
Year Cash Flow
1 $3,000
2 $4,000
3 $5,000
A) $10,588
B) $11,461
C) $12,688
D) $13,591
As a part of your savings plan at work, you have been depositing $250 per quarter in a savings account earning 8% interest compounded quarterly for the last 10 years. You will retire in 15 years and want to increase your contribution each year from $1,000 to $2,000 per year, by increasing your contribution every four months from $250 to $500. Additionally, you have just inherited $10,000, which you plan to invest now to earn interest at 12% compounded annually for the next 15 years. How much money will you have in savings when you retire 15 years from now?
A) $126,862
B) $73,012
C) $161,307
D) $194,415
Ronald Slump purchased a real estate investment with the following end-of-year cash flows:
Year EOY Cash Flow
1 $200
2 $-350
3 $-430
4 $950
What is the present value of these cash flows if the appropriate discount rate is 20%?
A) $178
B) $160
C) $133
D) $767
You have just won a magazine sweepstakes and have a choice of three alternatives. You can get $100,000 now, or $10,000 per year in perpetuity, or $50,000 now and $150,000 at the end of 10 years. If the appropriate discount rate is 12%, which option should you choose?
A) $100,000 now
B) $10,000 perpetuity
C) $50,000 now and $150,000 in 10 years
