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Exam 2: How to Calculate Present Values

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Question 51

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If the present value of $250 expected one year from today is $200,what is the one-year discount rate?

A) 10%
B) 20%
C) 25%
D) 30%

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Question 52

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What is the present value of a six-year,$5,000 per year annuity at a discount rate of 10%?

A) $21,776.30
B) $3,371.91
C) $16,760.78
D) $18,327.82

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Question 53

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John House has taken a $250,000 mortgage on his house at an interest rate of 6% per year.If the mortgage calls for 20 equal,annual payments,what is the amount of each payment?

You just inherited a trust that will pay you $100,000 per year in perpetuity.However,the first payment will not occur for exactly four more years.Assuming a 10% annual interest rate,what is the value of this trust?

If the present value of cash flow X is $240,and the present value of cash flow Y is $160,then the present value of the combined cash flows is:

You would like to have enough money saved to receive $80,000 per year in perpetuity after retirement for you and your heirs.How much would you need to have saved in your retirement fund to achieve this goal? (Assume that the perpetuity payments start one year from the date of your retirement.The annual interest rate is 8%.)

What is the present value of a $1,000 per year annuity for five years at an interest rate of 12%?

You would like to have enough money saved to receive a $50,000 per year perpetuity after retirement.How much would you need to have saved in your retirement fund to achieve this goal? (Assume that the perpetuity payments start on the day of your retirement.The annual interest rate is 8%.)

Present value is defined as:

Define the term perpetuity.

If the present value annuity factor is 3.8896,what is the present value annuity factor for an equivalent annuity due if the interest rate is 9%?

A dollar today is worth more than a dollar tomorrow if the interest rate is positive.

The rate of return on any perpetuity is equal to its cash flow multiplied by its price.

Briefly explain the term discount rate.

If the three-year present value annuity factor is 2.673 and the two-year present value annuity factor is 1.833,what is the present value of $1 received at the end of the three years?

Mr.Hopper expects to retire in 25 years,and he wishes to accumulate $750,000 in his retirement fund by that time.If the interest rate is 10% per year,how much should Mr.Hopper put into his retirement fund each year in order to achieve this goal? (Assume that he makes payments at the end of each year.)

What is the present value of $10,000 per year in perpetuity at an interest rate of 10%?

The opportunity cost of capital for a risky project is:

If the five-year present value annuity factor is 3.60478 and the four-year present value annuity factor is 3.03735,what is the present value at the $1 received at the end of five years?

If you invest $100 at 12% APR for three years,how much would you have at the end of three years using simple interest?