Time Value of Money Flashcards
Consider an investment that pays $200 one year from now with cash flows increasing by $200 per year through year 4. If the IR is 12% ,what is the present value of this stream of cash flows?
$1432.92
You have $100 to invest in a bank account that pays an interest rate r = 6% per year. How much will you earn in 1 year? 2 years?
106.00, 112.36
Invest $1,000 today for a five-year term and receive 8% annual compound interest. How much will the accumulated value be at year five?
$1,469.33
You invest $25,000 in a security that pays an interest rate of 4% per year on a compounded basis for nine years. How much money will you receive at the end of nine years?
$35,582.80
We know we want $1,000,000 when we retire 40 years from today. If we can earn a 10% return on our money, how much should we invest today?
$22,094.93
If we deposit $5,000 today in an account paying 10%, how long does it take to grow to $10,000?
$7.27
Assume the total cost of a university education will be $50,000 when your child enters university in 12 years. You have $5,000 to invest today. What rate of interest must you earn on your investment to cover the cost of your child’s education?
21.15%
What is the “quarterly” effective rate for a quoted rate of 10% that is compounded “semi-annually”?
2.47%
What if you invest $1,000 at a nominal rate of 16% compounded quarterly (i.e. earn 4% per quarter)?
$1,169.86
Assume that we want to save $2,000 at the end of each year for the next 10 years. If we can earn 10% on our investments, how much will we have saved?
$31,874.85
You have just won a lottery and have two options. You can take $1,000,000 at the end of each year for 25 years or a lump sum of $10,000,000 today. If the appropriate discount rate is 10%, what should you do?
$10M Today
What is the present value of receiving $3,000 per year (at year end) for 30 years assuming the appropriate discount rate is 10%?
$28,280.74
What is the present value of a four-year annuity of $100 per year that makes its first payment two years from today if the discount rate is 9%?
$297.22
Gabana Corporation is expected to pay a dividend of $3 per share next year. Investors anticipate that the annual dividend will rise by 6% per year forever. The required rate of return is 11%. What is the price of the stock today?
$60
Recall that Lottery Class Question presented earlier was to receive $3,000 per year for 30 years. What if you could receive $3,000 forever? What is the PV of these payments using the discount rate of 10%?
$30,000
