Question 1

A rich donor gives a hospital $1,040,000 one year from today. Each year after that, the hospital will receive a payment 6% larger than the previous payment, with the last payment occurring in ten years' time. What is the present value (PV) of this donation, given that the interest rate is 11%?

Accepted Answer

A)  $3,840,628.87
B)  $5,376,880.42
C)  $6,913,131.97
D)  $7,681,257.74

Question 2

You are given two choices of investments, Investment A and Investment B. Both investments have the same future cash flows. Investment A has a discount rate of 4%, and Investment B has a discount rate of 5%. Which of the following is true?

Accepted Answer

A)  The present value of cash flows in Investment A is higher than the present value of cash flows in Investment B.
B)  The present value of cash flows in Investment A is lower than the present value of cash flows in Investment B.
C)  The present value of cash flows in Investment A is equal to the present value of cash flows in Investment B.
D)  No comparison can be made-we need to know the cash flows to calculate the present value.

Question 3

Matthew wants to take out a loan to buy a car. He calculates that he can make repayments of $5000 per year. If he can get a four-year loan with an interest rate of 7.9%, what is the maximum price he can pay for the car?

Accepted Answer

A)  $16,598
B)  $19,918
C)  $23,237
D)  $26,557

Question 4

What is the present value (PV) of an investment that will pay $500 in one year's time, and $500 every year after that, when the interest rate is 10%?

Accepted Answer

A)  $2500
B)  $4000
C)  $3000
D)  $5000

Question 5

A perpetuity will pay $900 per year, starting five years after the perpetuity is purchased. What is the present value (PV) of this perpetuity on the date that it is purchased, given that the interest rate is 11%?

Accepted Answer

A)  $2695
B)  $4312
C)  $5390
D)  $3234

Question 6

Which of the following investments has a higher present value, assuming the same (strictly positive) interest rate applies to both investments?

Accepted Answer

A)  Investment X has a higher present value.
B)  Investment Y has a higher present value.
C)  Investment X and Investment Y have the same present value, since the total of the cash flows is the same for both.
D)  No comparison can be made-we need to know the interest rate to calculate the present value.

Question 7

You are offered an investment opportunity that costs you $28,000, has a net present value (NPV) of $2278, lasts for three years, has interest rate of 10%, and produces the following cash flows:  The missing cash flow from year 2 is closest to ________.

Accepted Answer

A)  $12,500
B)  $12,000
C)  $13,000
D)  $10,000

Exam 4: Time Value of Money: Valuing Cash Flow Streams

A perpetuity will pay $900 per year, starting five years after the perpetuity is purchased. What is the present value (PV) of this perpetuity on the date that it is purchased, given that the interest rate is 11%?

Correct Answer
verified

You are offered an investment opportunity that costs you $28,000, has a net present value (NPV) of $2278, lasts for three years, has interest rate of 10%, and produces the following cash flows: The missing cash flow from year 2 is closest to ________.

Correct Answer
verified

A rich donor gives a hospital $1,040,000 one year from today. Each year after that, the hospital will receive a payment 6% larger than the previous payment, with the last payment occurring in ten years' time. What is the present value (PV) of this donation, given that the interest rate is 11%?

Correct Answer
verified

Matthew wants to take out a loan to buy a car. He calculates that he can make repayments of $5000 per year. If he can get a four-year loan with an interest rate of 7.9%, what is the maximum price he can pay for the car?

Correct Answer
verified

What is the present value (PV) of an investment that will pay $500 in one year's time, and $500 every year after that, when the interest rate is 10%?

Correct Answer
verified

You are given two choices of investments, Investment A and Investment B. Both investments have the same future cash flows. Investment A has a discount rate of 4%, and Investment B has a discount rate of 5%. Which of the following is true?

Correct Answer
verified

Which of the following investments has a higher present value, assuming the same (strictly positive) interest rate applies to both investments?

Correct Answer
verified

Exam 4: Time Value of Money: Valuing Cash Flow Streams

A perpetuity will pay $900 per year, starting five years after the perpetuity is purchased. What is the present value (PV) of this perpetuity on the date that it is purchased, given that the interest rate is 11%?

Correct AnswerverifiedShow Answer

You are offered an investment opportunity that costs you $28,000, has a net present value (NPV) of $2278, lasts for three years, has interest rate of 10%, and produces the following cash flows: The missing cash flow from year 2 is closest to ________.

Correct AnswerverifiedShow Answer

A rich donor gives a hospital $1,040,000 one year from today. Each year after that, the hospital will receive a payment 6% larger than the previous payment, with the last payment occurring in ten years' time. What is the present value (PV) of this donation, given that the interest rate is 11%?

Correct AnswerverifiedShow Answer

Matthew wants to take out a loan to buy a car. He calculates that he can make repayments of $5000 per year. If he can get a four-year loan with an interest rate of 7.9%, what is the maximum price he can pay for the car?

Correct AnswerverifiedShow Answer

What is the present value (PV) of an investment that will pay $500 in one year's time, and $500 every year after that, when the interest rate is 10%?

Correct AnswerverifiedShow Answer

You are given two choices of investments, Investment A and Investment B. Both investments have the same future cash flows. Investment A has a discount rate of 4%, and Investment B has a discount rate of 5%. Which of the following is true?

Correct AnswerverifiedShow Answer

Which of the following investments has a higher present value, assuming the same (strictly positive) interest rate applies to both investments?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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verified

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verified

Correct Answer
verified

Correct Answer
verified