Fin. MGMT HMT 384

Which one of the following variables is the exponent in the present value formula?

Number of time periods

You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now?

future value

What happens to the present value of a future cash flow as the interest rate increases?

it decreases

Everything else being the same, the more frequent the compounding, the higher the future value?

true

Five years ago, you invested $1,500 into an account and received $2,500 today. What annual rate of interest did you earn if the interest was compounded monthly?

10.26% n- 5*12 i/y-0.8550*12 pv- - 1500 pmt-0 fv- 2500

Invested $25,000 into an account that earns 8.50%. How much will you have if you leave that investment for 5 years?

$37,591.42 N-5 i/y- 8.50 pv- -25,000 pmt- 0 fv- x

Your cousin found this investment that offers $14,500 in three years. How much would you invest if you require 17% ROI, compounded monthly?

$8,738.40 n-36 i/y- 1.42 pv- pmt-0 fv-14500

You want to save for your kid's college education and estimated that you will need $100,000 when she/he starts college. You invested $25,000 into an account that earns 7%, compounded daily. How much will you have in 18 years?

$88,124.89 N-10 i/y- 4.50 pv- pmt- 0 fv- 100,000

You found an investment that will pay $250 a month and payments will grow at 1 percent. How much would you pay for such an investment if your discount rate is 4 percent?

(250*12) / (0.04 - 0.01) = 100,000

You want to buy a car and can afford $300 monthly payments and have $2,500 in hand to make as a down payment. Car dealer has an advertisement for a 60-month loan with 4.99 percent interest. How much loan can you afford the most?

15,901.07 n- 60 i/y- 4.99/12 pv- 15,901.07 pmt- -300 fv- 0

You deposited $700 at the beginning of each month into an account that earns 3 percent for four years. How much will you have at the end?

35,740.98 n- 4x12 i/y-3/12 pv- 0 pmt--700 fv-x

An investment offers you $10,000 at the end of 10 years. How much are you willing to pay if the discount rate is 4.50%?

6,439.28 n- 10 i/y- 4.50 pv-x pmt-0 fv-10,000

You want to retire with 2.5 million dollars. You decided to invest $300 a month into an account that earns 7 percent. How much will you have if you invest for 40 years?

787,444 n- 40*12 i/y-7/12 pv-0 pmt--300 fv-787,444.02

You found an investment that pays $1,000 a year for 15 years. How much would you pay for this investment if you require 8 percent return on your investment?

8,559.48 N-15 I/Y- 8 PV- - 8559.48 PMT- 1000 FV- 0

How many years will it take for your $200 investment to reach $10,000 at 4.50%?

88.88 n- x i/y- 4.5 pv- -200 pmt- 0 fv- 10,000

You bought McDonald's share for $77 on February 5, 2011 (8 years ago). Today the stock price is $160. What is the annual rate of return, assuming this was compounded daily (365 days in a year)?

9.14 n- 8x364 i/y-0.02505*365= 9.14 pv- -77 pmt- 0 fv- 160

You purchased a silver coin for $20 ten years ago. You saw on eBay that similar coins are selling for $50. What is the annual rate of return on this investment if you sold it today?

9.60% n- 10 i/y- 9.60 pv- -20 pmt- 0 fv-50

You want to retire with $1,000,000 in 30 years. How much do you need to invest today if you can earn 6 percent, compounded weekly?

$165,470.50 n- 1560 i/y-0.12 pv-x (-165,470.50) pmt-0 fv-1,000,000.00

Kurt will receive $100,000 in 5 years. The value of this cash flow today discounted at his discount rate is called which one of the following?

Present value.

Interest earned on both the initial principal and the interest reinvested from prior periods is called:

compound interest

Present value describes the amount received or paid every period.

false