Exam 4: The Time Value of Money

It has long been told that the Dutch purchased Manhattan island in 1626 for the value of 60 guilders ($24).Assuming that the Dutch invested this money into an account earning 5%,approximately how much would their investment be worth 380 years later in 2006?

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:

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:

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:

The British government has just issued a new consol bond that sells for £1000 and pays interest of 8%.The annual interest payment on this bond must be:

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

When you compare or combine cash flows,you can only compare or combine them

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. -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:

Use the figure for the question(s) below. -Which of the following statements regarding timelines is false?

Suppose that you deposit $10,000 in an account that pays 6% interest and you want to know how much will be in your account at the end of 10 years.To solve this problem in Microsoft Excel,you would use which of the following Excel formulas?

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:

Which of the following statements regarding perpetuities is false?

Which of the following statements regarding annuities is false?

Consider the following timeline: If the current market rate of interest is 10%,then the future value of this timeline is closest to:

In cash flow calculations,Cash Flow Sign Convention requires us to

Use the table for the question(s) below. -If the interest rate is 6%,then the NPV of investment "B" is closest to:

When a value or a cash flow is compounded or discounted,the value or cash flow will have

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:

Suppose that you are considering an investment that will pay you $4000 per year for the next five years.The appropriate rate of interest is 5%.You want to know the present value of the cash flows from this investment.To solve this problem in Microsoft Excel,you would use which of the following Excel formulas?

Which of the following statements regarding growing annuities is false?