Exam 4: The Time Value of Money

Wyatt oil is considering drilling a new self sustaining oil well at a cost of $1,000,000.This well will produce $100,000 worth of oil during the first year,but as oil is removed from the well the amount of oil produced will decline by 2%,per year forever.If the Wyatt oil's appropriate interest rate is 8%,then the NPV of this oil well is closest to:

After your grandmother retired,she purchased an annuity contract for $250,000 that will pay her $25,000 at the end of every year until she dies.The appropriate interest rate for this annuity is 8%.The number of years that your grandmother must live in order to get more value out of the annuity than what she paid for it is closest to:

Use the information for the question(s)below. Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay for their child's college education.Currently,college tuition,books,fees,and other costs,average $12,500 per year.On average,tuition and other costs have historically increased at a rate of 4% per year. -Assuming that costs continue to increase an average of 4% per year,tuition and other costs for one year for this student in 18 years when she enters college will be closest to:

Consider the following time line: If the current market rate of interest is 8%,then the present value of this timeline is closest to:

Consider the following timeline detailing a stream of cash flows: If the current market rate of interest is 6%,then the future value of this stream of cash flows is closest to:

If the appropriate interest rate is 10%,then Nielson Motors should:

Which of the following statements is FALSE?

The British government has a consol bond outstanding that pays ₤100 in interest each year.Assuming that the current interest rate in Great Britain is 5% and that you will receive your first interest payment immediately upon purchasing the consol bond,then the value of the consol bond is closest to:

Which of the following statements is FALSE?

Consider the following timeline detailing a stream of cash flows: If the current market rate of interest is 8%,then the present value of this stream of cash flows is closest to:

You have an investment opportunity that will cost you $10,000 today,but return $12,500 to you in one year.The IRR of this investment opportunity is closest to:

Since your first birthday,your grandparents have been depositing $1000 into a savings account on every one of your birthdays.The account pays 4% interest annually.Immediately after your grandparents make the deposit on your 18th birthday,the amount of money in your savings account will be closest to:

You are considering investing in a zero coupon bond that will pay you its face value of $1000 in ten years.If the bond is currently selling for $485.20,then the IRR for investing in this bond is closest to:

The ranking of the four alternatives from most valuable to least valuable if the interest rate is 6% per year would be:

Use the table for the question(s)below. -Draw a timeline detailing the cash flows from investment "A."

Which of the following statements regarding the timeline is FALSE?

Consider the following timeline: If the current market rate of interest is 7%,then the future value of this timeline as of year 3 is closest to:

Your son is about to start kindergarten in a private school.Currently,the tuition is $12,000 per year,payable at the start of the school year.You expect annual tuition increases to average 6% per year over the next 13 years.Assuming that you son remains in this private school through high school and that your current interest rate is 7%,then the present value of your son's private school education is closest to:

The British government has a consol bond outstanding that pays ₤100 in interest each year.Assuming that the current interest rate in Great Britain is 5% and that you will receive your first interest payment one year from now,then the value of the consol bond is closest to:

Consider the following timeline detailing a stream of cash flows: If the current market rate of interest is 10%,then the present value of this stream of cash flows is closest to: