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

Assume you borrow $5,000 today and pay back the loan in one lump sum four years from today. You are charged 8 percent interest per year. What amount will you pay back and how much interest will you pay?

Which of the following is the equivalent of $300 received today?

How much would be in your savings account in 10 years after depositing $50 today if the bank pays 7 percent interest per year?

What annual rate of return is earned on a $2,000 investment made in year 3 when it grows to $3,000 by the end of year 6?

What annual rate of return is earned on a $4,000 investment made in year 2 when it grows to $8,000 by the end of year 8?

What is the value in year 4 of a $9,000 cash flow made in year 13 if interest rates are 7 percent in years 4 through 9 and increase to 11 percent after that?

Consider a $1,000 deposit earning 7 percent interest per year for four years. How much total interest is earned on the original deposit (excluding interest earned on interest)?

A deposit of $1,000 earns the following interest rates: 8 percent in the first year, 7 percent in the second year, and 8 percent in the third year.What would be the third year future value?

How many years will it take $200 to grow to $250 with an annual interest rate of 4 percent?

Moving cash flows from one point in time to another requires us to use:

A $1,000 investment has doubled to $2,000 in seven years. How much longer will it take for the investment to reach $5,000 if it continues to earn the same rate?

How many years will it take $1 million to grow to $3 million with an annual interest rate of 7 percent?

You invested $1,400 in the stock market one year ago. Today the investment is valued at $1,100. What return did you earn? What return would you need to get back next year to break even overall?

Which of the following will not increase a present value?

What is the present value of a $200 payment made in 3 years when the discount rate is 8 percent?

The process of figuring out how much an amount that you expect to receive in the future is worth today is called:

What annual rate of return is earned on a $10,000 investment when it grows to $15,000 in 10 years?

How are present values affected by changes in interest rates?

A dollar paid (or received) in the future is:

Approximately how many years does it take to double a $500 investment when interest rates are 4 percent per year?