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

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Question 1

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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 percent per year,what is the combined present value of these cash flows?

A) $991.38
B) $1,097.14
C) $1,116.14
D) $1,213.92

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Question 2

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People borrow money because they expect

A) their purchases to give them the satisfaction in the future that compensates them for the interest payments charged on the loan.
B) the time value of money to apply only if they are saving money.
C) interest rates to rise.
D) that consumers don't need to calculate the impact of interest on their purchases.

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Question 3

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You want to retire in 40 years and you have $40,000 saved in your retirement account.You believe you will need $1,500,000 upon retirement.What rate will you need to earn on the account to achieve this goal?

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

What is the present value of a $200 payment made in three years when the discount rate is 8 percent?

Consider a $1,000 deposit earning 7 percent interest per year for four years.How much total interest is earned on the original deposit (excluding interest earned on interest) ?

Consider a $200 deposit earning 8 percent interest per year for three years.How much total interest is earned on interest (excluding interest earned on the original deposit) ?

What is the present value of a $500 payment made in four years when the discount rate is 8 percent?

How many years (and months) will it take $4 million to grow to $7 million with an annual interest rate of 12 percent?

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

You borrow $10,000 and will pay back the entire amount in 10 years.You are charged 6 percent interest per year.How much interest do you pay on this loan?

How many years (and months) will it take $1 million to grow to $3 million with an annual interest rate of 7.5 percent?

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 8?

As the production manager of HPG,Inc.,you have received an offer from the supplier who provides the wires used in headsets.Due to poor planning,the supplier has an excess amount of wire and is willing to sell $750,000 worth for only $600,000.You already have one year's supply of wire on hand.This new wire would be used one year from today.What implied interest rate would your firm be earning if you purchased the wire?

You double your money in five years.The reason your return is not 20 percent per year is because:

Which of the following would you prefer?

Consider a $500 deposit earning 5 percent interest per year for five years.How much total interest is earned on the original deposit (excluding interest earned on interest) ?

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

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

What is the future value of $700 deposited for one year earning 4 percent interest rate annually?