Exam 2: How to Calculate Present Values

You would like to have enough money saved after your retirement such that you and your heirs can receive $100,000 per year in perpetuity.How much would you need to have saved at the time of your retirement in order to achieve this goal? (Assume that the perpetuity payments start one year after the date of your retirement.The annual interest rate is 12.5 percent.)

If the future value annuity factor at 10 percent and five years is 6.1051, calculate the equivalent present value annuity factor.

You just inherited a trust that will pay you $100,000 per year in perpetuity.However, the first payment will not occur for exactly five more years.Assuming a 10 percent annual interest rate, what is the value of this trust?

The present value of $121,000 expected one year from today at an interest rate (discount rate) of 10 percent per year is

You would like to have enough money saved to receive a growing annuity for 25 years, growing at a rate of 4 percent per year, with the first payment of $60,000 occurring exactly one year after retirement.How much would you need to save in your retirement fund to achieve this goal? The interest rate is 12 percent.

Which of the following statements is true?

What is the net present value (NPV) of the following sequence of cash flows at a discount rate of 9 percent? $\frac{\mathrm{t}=0}{-250.000}$ $\quad$ $\frac{t=1}{100.000}$ $\quad$$\frac{\mathrm{t}=2}{150.000}$ $\quad$ $\frac{\mathrm{t}=3}{20,000}$

The value of a five-year annuity is equal to the sum of two perpetuities.One makes its first payment in year 1, and the other makes its first payment in year 6.

The rate of return, discount rate, hurdle rate, and opportunity cost of capital all have the same meaning.

Briefly explain the term discount rate.

One can find a project's net present value by subtracting the present value of its required investment from the present value of its future cash flows.

You would like to have enough money saved to receive $80,000 per year in perpetuity after retirement for you and your heirs.How much would you need to have saved in your retirement fund to achieve this goal? (Assume that the perpetuity payments start one year from the date of your retirement.The annual interest rate is 8 percent.)

At an interest rate of 10 percent, which of the following sequences of cash flows should you prefer? Year 1 Year 2 Year 3 A) 500 300 100 B) 100 300 500 C) 300 300 300 D) Any of the above as they all add up to \ 900

If the present value annuity factor is 3.8896, what is the present value annuity factor for an equivalent annuity due if the interest rate is 9 percent?

In the amortization of a mortgage loan with equal payments, the fraction of each payment devoted to interest steadily increases over time and the fraction devoted to reducing the loan balance decreases steadily.

What is the present value of $10,000 per year in perpetuity at an annual interest rate of 10 percent? Assume the perpetuity starts in one year.

After retirement, you expect to live for 25 years.You would like to have $75,000 income each year.How much should you have saved in your retirement account to receive this income, if the annual interest rate is 9 percent per year? (Assume that the payments start on the day of your retirement.)

You are considering investing in a retirement fund that requires you to deposit $5,000 per year, and you want to know how much the fund will be worth when you retire.What financial technique should you use to calculate this value?

An initial investment of $400,000 is expected to produce an end-of-year cash flow of $480,000.What is the NPV of the project at a discount rate of 20 percent?

Describe how you would go about finding the present value of any annuity given the formula for the present value of a perpetuity.