Exam 4: Time Value of Money 1: Analyzing Single Cash Flows

Assume you borrow $5,000 today and pay back the loan in one lump sum 4 years from today. You are charged 8% interest per year. What amount will you pay back and how much interest will you pay?

An average home in Chicago costs $295,000. If house prices are expected to grow at an average rate of 3% per year, what will a house cost in 5 years?

What is the present value of a $7,000 payment made in six years when the discount rate is 4%?

The Rule of 72 is a simple mathematical approximation for:

How much would be in your savings account in 12 years if you deposited $1,500 today? Assume the bank pays 5% per year.

Multi-Year Future Value How much would be in your savings account in 10 years after depositing $50 today if the bank pays 7% interest per year?

Solving for Rates What annual rate of return is earned on a $4,000 investment made in year 2 when it grows to $8,000 by the end of year eight?

The longer money can earn interest,

Solving for Time How many years will it take $1 million to grow to $3 million with an annual interest rate of 7 percent?

Rule of 72 Approximately what interest rate is needed to double an investment over 8 years?

How does compounding help build wealth (or increase debt) over time?

What annual rate of return is earned on a $13,000 investment made in year 2 when it grows to $17,000 by the end of year 7?

The process of figuring out how much an amount that you expect to receive in the future is worth today is called:

Solving for Rates What annual rate of return is earned on a $900 investment when it grows to $2,500 in fifteen years?

Discounting One Year What is the present value of a $500 payment in one year when the discount rate is 5 percent?

A firm's net income last year was $2.65 million. Its net income grew 8% during the last 5 years. If that growth rate continues, how long will it take for the firm's net income to double?

Approximately how many years does it take to double a $475 investment when interest rates are 8% per year?

Future Value At age 25 you invest $2,000 that earns 6 percent each year. At age 35 you invest $2,000 that earns 9 percent per year. In which case would you have more money at age 60?

Moving Cash Flows What is the value in year 6 of a $900 cash flow made in year 4 when the interest rates are 8 percent?

You are offered a choice between $770 today and $815 one year from today. Assume that interest rates are 4%. Which do you prefer?