Exam 14: The Basic Tools of Finance: Present Value Measuring the Time Value of Money

Suppose the interest rate is 8 percent.Consider three payment options. 1)$300 today. 2)$330 one year from today. 3)$360 two years from today. Which of the following is correct?

Markovich Corporation is considering building a new plant.It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today.Of the interest rates below,which is the highest interest rate at which Markovich still would be willing to build the plant?

A University of Iowa basketball standout is offered a choice of contracts by the New York Liberty.The first one gives her $100,000 one year from today and $100,000 two years from today.The second one gives her $132,000 one year from today and $66,000 two years from today.As her agent,you must compute the present value of each contract.Which of the following interest rates is the lowest one at which the present value of the second contract exceeds that of the first?

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $12,000 two years from today.Of the following interest rates,which is the highest one at which Harry would be better off paying the money today?

Tonya put $250 into an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Tonya have in her account now?

Hector puts $150 into an account when the interest rate is 4 percent.Later he checks his balance and finds he has about $168.73.How long did Hector wait to check his balance?

You are given three options.You may have the balance in an account that has been collecting 5 percent interest for 20 years,the balance in an account that has been collecting 10 percent interest for 10 years,or the balance in an account that has been collecting 20 percent interest for five years.Each account had the same original balance.Which account now has the lowest balance?

A car salesperson gives you four alternative ways to pay for your car.The first is to pay $18,000 today.The second is to pay $19,000 one year from today.The third is to pay $20,300 two years from today.The fourth is to pay $21,500 three years from today.If the interest rate is 6 percent,which payment option has the lowest present value and which has the highest?

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Allen Steel Company is considering whether to build a new mill.If the interest rate rises,

Suppose the interest rate is 7 percent.Consider four payment options: Option A: $500 today. Option B: $550 one year from today. Option C: $575 two years from today. Option D: $600 three years from today. -Which of the payments has the lowest present value today?

Ellen deposited $500 into an account and two years later she had $561.80 in the account.What interest rate was paid on Ellen's deposit?

At which interest rate is the present value of $183.60 two years from today equal to about $173.06 today?

Four years ago Ollie deposited some money into an account.He earned 5 percent interest on this account and now it has a balance of $303.88.About how much money did Ollie deposit into his account when he opened it?

Sage decides to cash in all his savings to open a recording studio.He has three accounts to cash in.The first earned 9 percent for two years.The second earned 6 percent for three years.And the last earned 3 percent for six years.Supposing he started with $5,000 in each account,from which account will he get the most cash?

Suppose the parents of a child born in the year 2000 had invested $5,000 at a 10% interest rate to be paid out to the child when she turns 21 years old.Approximately how many times will the investment double by the time it is paid out to the child?

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today.What is the present value of these payments?

Two years ago Darryl put $3,000 into an account paying 3 percent interest.How much does he have in the account today?