Submitted by: Submitted by vadim
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Words: 5473
Pages: 22
Category: Business and Industry
Date Submitted: 06/12/2014 07:48 PM
Present Value Problems
1. At an effective annual interest rate of 20 percent, how many years will it take a given amount to triple in value? (Round to the closest year.)
a. 5 years
b. 8 years
c. 6 years
d. 10 years
e. 9 years
2. You deposited $1,000 in a savings account that pays 8 percent interest, compounded quarterly, planning to use it to finish your last year in college. Eighteen months later, you decide to go to the Rocky Mountains to become a ski instructor rather than continue in school, so you close out your account. How much money will you receive?
a. $1,171
b. $1,126
c. $1,082
d. $1,163
e. $1,008
3. What is the future value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?
a. $ 670.44
b. $ 842.91
c. $1,169.56
d. $1,522.64
e. $1,348.48
4. What is the present value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?
a. $ 670.43
b. $ 842.91
c. $1,169.56
d. $1,348.48
e. $1,522.64
5. You have the opportunity to buy a perpetuity which pays $1,000 annually. Your required rate of return on this investment is 15 percent. You should be essentially indifferent to buying or not buying the investment if it were offered at a price of
a. $5,000.00
b. $6,000.00
c. $6,666.67
d. $7,500.00
e. $8,728.50
6. An investor is considering the purchase of 20 acres of land. An analysis indicates that if the land is used for cattle grazing, it will produce a cash flow of $1,000 per year indefinitely. If the investor requires a return of 10 percent on investments of this type, what is the most he or she should be willing to pay for the land?
a. $ 1,000
b. $ 10,000
c. $ 100,000
d. $ 150,000
e. $1,000,000
7. Assume that you will receive $2,000 a year in Years 1 through 5, $3,000 a year in Years 6 through 8, and $4,000 in Year 9, with all cash flows to be received at the end of...