[PDF] [PDF] Chapter 2: Time Value of Money Practice Problems

until the bond matures 10 years from now, at which time it will be redeemed for $1,000 What interest At a rate of 8 , what is the present value of the following cash flow stream? $0 at Time 0; $100 at FV of a lump sum Answer: e EASY N



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until the bond matures 10 years from now, at which time it will be redeemed for $1,000 What interest At a rate of 8 , what is the present value of the following cash flow stream? $0 at Time 0; $100 at FV of a lump sum Answer: e EASY N



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Chapter2:TimeValueofMoney

PracticeProblems

FVofalumpsum

theybe10yearslater,in2015,inmillions?

PVofalumpsum

Interestrateonasimplelumpsuminvestment

Numberofperiods

PVofanordinaryannuity

Payments

onanannualannuity

Paymentsonamonthlyannuity

make?

PVofaperpetuity

Rateofreturnonaperpetuity

pays$105peryear?

PVofanunevencashflowstream

endofYear3;and$500attheendofYear4? i. FV of a lump sum Answer: e EASY N10 I/YR 8% PV -$100.00 PMT $0.00

FV $215.89

ii. PV of a lump sum Answer: c EASY N3 I/YR 4%

PV $889.00

PMT $0 FV -$1,000.00 iii. Interest rate on a simple lump sum investment Answer: e EASY N10

I/YR 5.00%

PV -$613.81 PMT $0 FV $1,000.00 iv. Number of periods Answer: a EASY N6.64 I/YR

11.00%

PV -$2.00 PMT $0 FV $4.00 v. PV of an ordinary annuity Answer: c EASY N5 I/YR 6.00%

PV $4,212.36

PMT -$1,000 FV $0.00 vi. Payments on an ordinary annuity Answer: c EASY N15 I/YR 6.00% PV -$200,000

PMT $20,592.55

FV $0.00 vii. Mortgage payments Answer: c MEDIUM N360 I

0.5833%

PV $190,000

PMT -$1,264

FV $0.00 viii. PV of a perpetuity Answer: e EASY

I/YR6.00%

PMT $100

PV $1,666.67

Divide PMT by I.

ix. Rate of return on a perpetuity Answer: b EASY

Cost $1,500

PMT $105

I/YR 7.00%

Divide PMT by Cost.

x. PV of an uneven cash flow stream Answer: a EASY

I/YR =8%

0 1 234

CFs: $0 $100 $300 $0 $500

PV of CFs: $0 $92.59 $257.20 $0 $367.51

PV = $717.31

Find the individual PVs and sum them.

PV = $717.31 Automate the process using Excel or a calculator, by inputting the data into the cash flow register and pressing the NPV key.quotesdbs_dbs6.pdfusesText_12