Exam 5: The Value of Money

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You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment?

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Time lines can be constructed in situations where some of the cash flows occur annually but others occur quarterly.

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Your uncle has $300,000 invested at 7.5%, and he now wants to retire. He wants to withdraw $35,000 at the end of each year, starting at the end of this year. He also wants to have $25,000 left to give you when he ceases to withdraw funds from the account. For how many years can he make the $35,000 withdrawals and still have $25,000 left in the end?

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What is the PV of an ordinary annuity with 5 payments of $4,700 if the appropriate interest rate is 4.5%?

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