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

You just won the lottery and after taxes you have $32,000. You want to have $1,000,000 by the time you are 65, which is 45 years from now. Assuming that you can earn 9% each on your money, how much (in dollars) of the $32,000 must you invest today?

Your firm receives an offer from the supplier who provides computer chips used to manufacture cell phones. Due to poor planning, the supplier has an excess amount of chips and is willing to sell $600,000 worth of chips for only $500,000. You already have two years' supply on hand. It would cost you $7,500 today to store the chips until your firm needs them in two years. What implied interest rate would you be earning if you purchased and store the chips?

You are scheduled to pay a $350 cash flow in one year, and receive a $1,000 cash flow in years 3 and 4. If interest rates are 10% per year, what is the combined present value of these cash flows?

Rates over One Year Determine the interest rate earned on a $450 deposit when $475 is paid back in one year.

Solving for Rates What annual rate of return is earned on a $10,000 investment when it grows to $15,000 in ten years?

Rates over One Year Determine the interest rate earned on a $500 deposit when $650 is paid back in one year.

Compounding with Different Interest Rates A deposit of $1000 earns the following interest rates: * 8 percent in the first year * 7 percent in the second year, and * 8 percent in the third year. What would be the third year future value?

General TVM Five years ago, Jane invested $5,000 and locked in an 8 percent annual interest rate for 25 years (end 20 years from now). James can make a twenty year investment today and lock in a 10 percent interest rate. How much money should he invest now in order to have the same amount of money in 20 years as Jane?

What is the value in year 10 of a $1,000 cash flow made in year 5 if interest rates are 9% in years 6 and 7 and increase to 13% in the remaining years?

How much would be in your savings account in 7 years after depositing $100 today if the bank pays 5% interest per year?

Rule of 72 Approximately how many years does it take to double a $500 investment when interest rates are 4% per year?

Suppose a U.S. Treasury bond promises to pay $9,780.13 in three years. If bonds of this type are generating a 4% annual return, how much would you pay for this bond today?

What is the value in year 6 of a $9,000 cash flow made in year 14 if interest rates are 7% in years 4 through 9 and increase to 10% after that?

Present Value What is the present value of a $750 payment made in 3 years when the discount rate is 5 percent?

Moving cash flows from one point in time to another requires us to use

Why is a dollar worth more today than a dollar received one year from now?

A $400 investment has doubled to $800 in six years because of a 12.25% return. How much longer will it take for the investment to reach $1100 if it continues to earn 12.25%?

You invested $2,000 in the stock market one year ago. Today, the investment is valued at $9,500. What return did you earn? What return would you need to suffer next year for your investment to be valued at the original $2,000?

Which of the following statements is correct?

A $7 million deposit earns 5% for 9 years. If the account loses 2% per year after that, how long will it take to be reduced back to $7 million?