Question 1

Pam is in need of cash right now and wants to sell the rights to a $1,000 cash flow that she will receive 5 years from today.If the discount rate for such a cash flow is 9.5%,then what is the fair price that someone should be willing to pay Pam today for rights to that future cash flow?

Accepted Answer

1,000/(1.095)⁵ = 635.23

Question 2

When you retire you expect to live for another 30 years.During those 30 years you want to be able to withdraw $4,000 at the BEGINNING of every month for living expenses.How much money do you have to have in your retirement account to make this happen.Assume that you can earn 8% on your investments.

Accepted Answer

FV: 0
PMT: 4000
I/Y: 8/12
N: 30*12
PV: 548768.2

Question 3

You are planning your retirement and you come to the conclusion that you need to have saved $1,250,000 in 30 years.You can invest into an retirement account that guarantees you a 5% return.How much do you have to put into your account at the end of every month to reach your retirement goal?

Accepted Answer

FV: 1250000
PV: 0
I/Y: 5/12
N: 12*30
PMT: 1501.94

Question 4

You found your dream house.It will cost you $175,000 and you will put down $35,000 as a down payment.For the rest you get a 30-year 6.25% mortgage.What will be your monthly mortgage payment (assume no early repayment)?

Accepted Answer

PV: 175000-35000
FV: 0
I/Y: 6.25/12
N: 30*12
PMT: 862

Question 5

Your father's pension recently vested and he is told that if he never works another day in his life,he will receive a lump sum of $1,500,000 on his 65th birthday (exactly 15 years from today).Assume that your father needs to permanently retire today.What could he sell the rights to his lump sum for,today,if the correct discount rate for such a calculation is 6%?

Accepted Answer

1,500,000/[1.06]¹⁵ = 625,897.59

Question 6

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the end of year 5.What amount will you have at the end of year 5 if you can invest all amounts at a 11% interest rate?

Accepted Answer

70 ´ {[{[(1.11)⁵ - 1]/.11} ´ 1.11]+1} = 553.90

Question 7

Your parents set up a trust for you that you will not have access to until your 30th birthday,which is exactly 9 years from today.By prior arrangement,the trust will be worth exactly $200,000 on your 30th birthday.You need cash today and are willing to sell the rights to that trust today for a set amount.If the discount rate for such a cash flow is 12%,what is the maximum amount that someone should be willing to pay you today for the rights to the trust on your 30th birthday?

Accepted Answer

200,000/(1.12)⁹ = 72,122.00

Question 8

If you were to invest $120 for two years,while earning 8% SIMPLE interest,what is the TOTAL AMOUNT OF INTEREST that you will earn?

Accepted Answer

120 ´ [.08 ´ 2] = 19.20

Question 9

In the equation below,the exponent "3" represents $133.10 = $100 ´ (1 + .1)³

Accepted Answer

The exponent "3" in the equation represents the number of periods that the present value is left on deposit, indicating how many times the interest is compounded over the period.

Question 10

You want to buy a new plasma television in 3 years,when you think prices will have gone down to a more reasonable level.You anticipate that the television will cost you $2,500.If you can invest your money at 8% compounded monthly,how much do you need to put aside today?

Accepted Answer

FV: 2500 PMT: 0 I/Y: 8/12 N:3*12 PV: 1968.14

Question 11

If the rate of interest that investors can earn on a 2-year investment is zero then

Accepted Answer

If the rate of interest is zero, there is no cost to borrowing money or investing money for 2 years. Therefore, you will repay the same amount you borrowed at the beginning of the loan (A) and you will receive the same amount of money at maturity that you invested at the beginning of the investment (C). Overall, all of the above options are correct when the interest rate is zero.

Question 12

You will receive a stream of $50 payments BEGINNING at the end of year 1 until the final payment at the end of year 5.What amount will you have at the end of year 5 if you can invest all amounts at a 9% interest rate?

Accepted Answer

50 ´ [{(1.09)⁵ - 1}/.09] = 299.24

Question 13

You will receive a stream of payments BEGINNING at the end of year 1 and the amount will increase by $10 each year until the final payment at the end of year 5.If the first payment is $50,what amount will you have at the end of year 5 if you can invest all amounts at a 7% interest rate?

Accepted Answer

50 ´ (1.07)⁴ + 60 ´ (1.07)³ +70 ´ (1.07)² +80 ´ (1.07)¹ +90 ´ (1.07)⁰ = 394.79

Question 14

You want to buy a new car.The car you picked will cost you $32,000 and you decide to go with the dealer's financing offer of 5.9% compounded monthly for 60 months.Unfortunately,you can only afford monthly loan payments of $300.However,the dealer allows you to pay off the rest of the loan in a one time lump sum payment at the end of the loan.How much do you have to pay to the dealer when the lump sum is due?

Accepted Answer

PMT: 300
FV:0
I/Y: 5.9/12
N: 60
PV: 15555
lump sum: (32000-15555)(1+.059/12)^60 = 22071.75

Question 15

If you were to invest $120 for two years,while earning 8% compound interest,what is the TOTAL AMOUNT OF INTEREST that you will earn?

Accepted Answer

{[(1.08)^2] ´ 120}- 120 = 19.97

Question 16

You are asked to choose between a 4-year investment that pays 10% compound interest and a similar investment that pays 11.5% SIMPLE interest.Which investment will you choose?

Accepted Answer

Assume a $10 investment: compound interest value is: $10 ´ (1.1)⁴= $14.64 simple interest value is: $10 * (1 + [.115 ´ 4])= $14.60 ====> select the compound interest investment.

Question 17

If you invested $2,000 in an account that pays 12% interest,compounded continuously,how much would be in the account in 5 years?

Accepted Answer

2000e^(.12´5)= 3644.24

Question 18

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the BEGINNING of year 5.What amount will you have at the end of year 5 if you can invest all amounts at an 11% interest rate?

Accepted Answer

70 ´ [{[(1.11)⁵ - 1]/.11} ´ 1.11] = 483.90

Question 19

In the equation below,the number "100" represents $75)13 = $100 / (1 + .1)³

Accepted Answer

The equation is using the formula for calculating the present value of a future cash flow, where 13 is the number of periods before the cash flow is received, 75 is the discount rate, and the unknown variable is the future value of the cash flow. The equation is solved for the future value, which is represented by 100 in this case. Therefore, 100 represents the future value of a cash flow to be received at a later date.

Question 20

The amount that someone is willing to pay today,for a single cash flow in the future is

Accepted Answer

The amount that someone is willing to pay today for a single cash flow in the future is the present value of the cash flow. Future value (A) refers to the value of the cash flow at a future point in time. Future value of a stream of cash flows (B) refers to the value of a series of cash flows at a future point in time. Present value (C) refers to the value of a cash flow or series of cash flows today. An annuity (D) refers to a series of equal cash flows over a period of time. The present value of an annuity would need to be calculated separately.

Quiz 3: The Time Value of Money

Pam is in need of cash right now and wants to sell the rights to a $1,000 cash flow that she will receive 5 years from today.If the discount rate for such a cash flow is 9.5%,then what is the fair price that someone should be willing to pay Pam today for rights to that future cash flow?

When you retire you expect to live for another 30 years.During those 30 years you want to be able to withdraw $4,000 at the BEGINNING of every month for living expenses.How much money do you have to have in your retirement account to make this happen.Assume that you can earn 8% on your investments.

You are planning your retirement and you come to the conclusion that you need to have saved $1,250,000 in 30 years.You can invest into an retirement account that guarantees you a 5% return.How much do you have to put into your account at the end of every month to reach your retirement goal?

You found your dream house.It will cost you $175,000 and you will put down $35,000 as a down payment.For the rest you get a 30-year 6.25% mortgage.What will be your monthly mortgage payment (assume no early repayment) ?

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the end of year 5.What amount will you have at the end of year 5 if you can invest all amounts at a 11% interest rate?

If you were to invest $120 for two years,while earning 8% SIMPLE interest,what is the TOTAL AMOUNT OF INTEREST that you will earn?

In the equation below,the exponent "3" represents $133.10 = $100 ´ (1 + .1) ³

You want to buy a new plasma television in 3 years,when you think prices will have gone down to a more reasonable level.You anticipate that the television will cost you $2,500.If you can invest your money at 8% compounded monthly,how much do you need to put aside today?

If the rate of interest that investors can earn on a 2-year investment is zero then

You will receive a stream of $50 payments BEGINNING at the end of year 1 until the final payment at the end of year 5.What amount will you have at the end of year 5 if you can invest all amounts at a 9% interest rate?

You will receive a stream of payments BEGINNING at the end of year 1 and the amount will increase by $10 each year until the final payment at the end of year 5.If the first payment is $50,what amount will you have at the end of year 5 if you can invest all amounts at a 7% interest rate?

If you were to invest $120 for two years,while earning 8% compound interest,what is the TOTAL AMOUNT OF INTEREST that you will earn?

You are asked to choose between a 4-year investment that pays 10% compound interest and a similar investment that pays 11.5% SIMPLE interest.Which investment will you choose?

If you invested $2,000 in an account that pays 12% interest,compounded continuously,how much would be in the account in 5 years?

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the BEGINNING of year 5.What amount will you have at the end of year 5 if you can invest all amounts at an 11% interest rate?

In the equation below,the number "100" represents $75) 13 = $100 / (1 + .1) ³

The amount that someone is willing to pay today,for a single cash flow in the future is

Quiz 3: The Time Value of Money

Pam is in need of cash right now and wants to sell the rights to a $1,000 cash flow that she will receive 5 years from today.If the discount rate for such a cash flow is 9.5%,then what is the fair price that someone should be willing to pay Pam today for rights to that future cash flow?

When you retire you expect to live for another 30 years.During those 30 years you want to be able to withdraw $4,000 at the BEGINNING of every month for living expenses.How much money do you have to have in your retirement account to make this happen.Assume that you can earn 8% on your investments.

You are planning your retirement and you come to the conclusion that you need to have saved $1,250,000 in 30 years.You can invest into an retirement account that guarantees you a 5% return.How much do you have to put into your account at the end of every month to reach your retirement goal?

You found your dream house.It will cost you $175,000 and you will put down $35,000 as a down payment.For the rest you get a 30-year 6.25% mortgage.What will be your monthly mortgage payment (assume no early repayment) ?

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the end of year 5.What amount will you have at the end of year 5 if you can invest all amounts at a 11% interest rate?

If you were to invest $120 for two years,while earning 8% SIMPLE interest,what is the TOTAL AMOUNT OF INTEREST that you will earn?

In the equation below,the exponent "3" represents $133.10 = $100 ´ (1 + .1) 3

You want to buy a new plasma television in 3 years,when you think prices will have gone down to a more reasonable level.You anticipate that the television will cost you $2,500.If you can invest your money at 8% compounded monthly,how much do you need to put aside today?

If the rate of interest that investors can earn on a 2-year investment is zero then

You will receive a stream of $50 payments BEGINNING at the end of year 1 until the final payment at the end of year 5.What amount will you have at the end of year 5 if you can invest all amounts at a 9% interest rate?

You will receive a stream of payments BEGINNING at the end of year 1 and the amount will increase by $10 each year until the final payment at the end of year 5.If the first payment is $50,what amount will you have at the end of year 5 if you can invest all amounts at a 7% interest rate?

If you were to invest $120 for two years,while earning 8% compound interest,what is the TOTAL AMOUNT OF INTEREST that you will earn?

You are asked to choose between a 4-year investment that pays 10% compound interest and a similar investment that pays 11.5% SIMPLE interest.Which investment will you choose?

If you invested $2,000 in an account that pays 12% interest,compounded continuously,how much would be in the account in 5 years?

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the BEGINNING of year 5.What amount will you have at the end of year 5 if you can invest all amounts at an 11% interest rate?

In the equation below,the number "100" represents $75) 13 = $100 / (1 + .1) 3

The amount that someone is willing to pay today,for a single cash flow in the future is

In the equation below,the exponent "3" represents $133.10 = $100 ´ (1 + .1) ³

In the equation below,the number "100" represents $75) 13 = $100 / (1 + .1) ³