Exam 4: The Time Value of Money

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:

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:

You work for a pharmaceutical company that has developed a new drug.The patent on the drug will last for 17 years.You expect that the drug will produce cash flows of $10 million in its first year and that this amount will grow at a rate of 4% per year for the next 17 years.Once the patent expires,other pharmaceutical companies will be able to produce generic equivalents of your drug and competition will drive any future profits to zero.If the interest rate is 12% per year,then the present value of producing this drug is closest to:

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

At an annual interest rate of 7%,the present value of this timeline in year 0 is closest to:

Consider a growing perpetuity that will pay $100 in one year.Each year after that,you will receive a payment on the anniversary of the last payment that is 6% larger than the last payment.This pattern of payments will continue forever.If the interest rate is 11%,then the value of this perpetuity is closest to:

The ranking of the four alternatives from most valuable to least valuable if the interest rate is 7% per year would be:

You are interested in purchasing a new automobile that costs $35,000.The dealership offers you a special financing rate of 6% APR (0.5%)per month for 48 months.Assuming that you do not make a down payment on the auto and you take the dealer's financing deal,then your monthly car payments would be closest to:

You are thinking about investing in a mine that will produce $10,000 worth of ore in the first year.As the ore closest to the surface is removed it will become more difficult to extract the ore.Therefore,the value of the ore that you mine will decline at a rate of 8% per year forever.If the appropriate interest rate is 6%,then the value of this mining operation is closest to:

If the appropriate interest rate is 8%,then present value of $500 paid at the end of each of the next 40 years is closest to:

Henry Rearden is saving for retirement and has determined that to live comfortably he must save $3 million by his 65th birthday.Henry just turned 30 today,and he has decided that starting today and continuing on every birthday up to and including his 65th birthday,he will deposit the same amount into an individual retirement account (IRA).If Henry can earn 8% on his IRA,then the amount he must set aside each year to make sure that he will have $3 million in his account on his 65th birthday is closest to:

If the appropriate interest rate is 15%,then Nielson Motors should:

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 future value of this stream of cash flows is closest to:

Consider the following timeline: If the current market rate of interest is 9%,then the present value of this timeline as of year 0 is 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:

Kampgrounds Inc.is considering purchasing a parcel of wilderness land near a popular historic site.Although this land will cost Kampgrounds $400,000 today,by renting out wilderness campsites on this land,Kampgrounds expects to make $35,000 at the end of every year indefinitely.If the appropriate discount rate is 8%,then the NPV of this new wilderness campsite is closest to:

Which of the following statements regarding annuities is FALSE?

You have been offered the following investment opportunity,if you pay $2500 today,you will receive $1000 at the end of each of the next three years.Draw a timeline detailing this investment opportunity.

The future value at retirement (age 65)of your savings is closest to: