Exam 3: Time Value of Money - Introduction

You have determined the profitability of a planned project by finding the present value of all the cash flows from that project.Which of the following would cause the project to look more appealing in terms of the present value of those cash flows?

You plan to invest $2,500 in a money market account which will pay an annual stated (nominal)interest rate of 8.75%,but which compounds interest on a weekly basis.If you leave this money on deposit for one year (52 weeks),what will be your ending balance when you close the account?

If interest rates are 5%,which of the following will produce the largest amount of money in four years?

If $100 is placed in an account that earns a nominal 4%,compounded quarterly,what will it be worth in 5 years?

A firm's stock price is $25 per share and is expected to grow at a 5% compound annual rate.What should the stock price per share be in five years?

Young Sook owns stock in a company which has consistently paid a growing dividend over the last 10 years.The first year Young Sook owned the stock,she received $4.50 per share and in the 10th year,she received $4.92 per share.What is the growth rate of the dividends over last 10 years?

You wish to deposit $7,000 in an account at the Shylock Bank.The bank pays interest at a nominal annual rate of 10% compounded quarterly.What is the future value in the account after seven years?

Your Godmother established a $3,000 bank account for you when you were born.For the first 10 years the interest rate on the account was 10%.It has been 7.5% since then.You are now 25 years old and would like to withdraw the funds.How much money do you have?

Your grandfather has left you $150,000 in a trust fund that you cannot have for another seven years.You have decided that you really need this money now to pay for your college expenses.Your attorney offers you $80,000 for an assignment of the proceeds of the trust.If you can get a student loan at 10%,should you accept your attorney's offer?

Bank A offers a 2-year certificate of deposit (CD)that pays 10 percent compounded annually.Bank B offers a 2-year CD that is compounded semi-annually.The CDs have identical risk.What is the stated,or nominal,rate that Bank B would have to offer to make you indifferent between the two investments?

Most people prefer to receive money today rather than ten years from now because

The price of a Wendy's Bacon Cheeseburger is $.99,the same as it was five years ago.Had the price of this sandwich increased at the same 3% annual rate as U.S.consumer prices did over the last five years,what would its price be today?

What is the future value of the following cash flows in year 5 with an interest rate of 6%?

Kathy deposited $100 in a savings account that paid 8% interest,compounded annually.How much compound interest did she earn after 2 years?

If the present value of a perpetual income stream is increasing,the discount rate must be:

What is the present value of $2,000 to be received in six years if interest rates are 8% compounded semiannually? (Round to the nearest whole dollar)

Penny just won the state lottery that offers a choice of payments.She may opt for either receiving $1,000,000 today or $2,000,000 at the end of ten years.If she can invest her funds at 5% annually,which is the better choice?

Suzanne has identified a project with the following cash flows.What is the present value of the cash flows at time 0 if the interest rate is 9%?

You want to have $55,230 at the end of seven years.How much do you have to invest today to accumulate that total if you can earn 14% compounded annually?

In order to open up your new business you need to take out a loan.First Bank charges 6% compounded quarterly,and Second Bank charges 6.5% compounded semi-annually.From which bank would you prefer to obtain your loan?