Exam 4: Time Value of Money 1: Analyzing Single Cash Flows

At age 20 you invest $1,000 that earns 7 percent each year. At age 30 you invest $1,000 that earns 10 percent per year. In which case would you have more money at age 60?

How many years (and months) will it take $4 million to grow to $7 million with an annual interest rate of 12 percent?

Your firm receives an offer from the supplier who provides computer chips used to manufacture cell phones. Due to poor planning, the supplier has an excess amount of chips and is willing to sell $600,000 worth of chips for only $500,000. You already have two years' supply on hand. It would cost you $7,500 today to store the chips until your firm needs them in two years. What implied interest rate would you be earning if you purchased and store the chips?

A $400 investment has doubled to $800 in six years because of a 12.25 percent return. How much longer will it take for the investment to reach $1100 if it continues to earn 12.25 percent?

Which of the following is NOT true when developing a time line?

An average home in Chicago costs $295,000. If house prices are expected to grow at an average rate of 3 percent per year, what will a house cost in 5 years?

What annual rate of return is earned on a $200 investment when it grows to $850 in 10 years?

You are scheduled to receive a $750 cash flow in one year, a $1,000 cash flow in two years, and pay a $300 payment in four years. If interest rates are 6 percent per year, what is the combined present value of these cash flows?

How much would be in your savings account in 12 years if you deposited $1,500 today? Assume the bank pays 5 percent per year.

Assume you borrow $500 from a payday lender. The terms are that you must pay a fee of $75 in advance (today) and one year from now you need to repay $750. What implied interest rate are you paying?

A deposit of $500 earns 5 percent the first year, 6 percent the second year and 7 percent the third year. What would be the third year future value?

Suppose a U.S. Treasury bond promises to pay $9,780.13 in three years. If bonds of this type are generating a 4 percent annual return, how much would you pay for this bond today?

When calculating the number of years needed to grow an investment to a specific amount of money:

Which of the following would you prefer?

You deposit $20,000 in an account that doubles in 7 years. How many years will it take the account to be reduced to its original value if it loses 12 percent per year?

People borrow money because they expect:

Which of the following statements is incorrect with respect to time lines?

What is the value in year 6 of a $900 cash flow made in year 4 when the interest rates are 8 percent?

What is the present value of a $500 payment in one year when the discount rate is 5 percent?

With regard to money deposited in a bank, future values are: