Chapter_04_sol_students -...

Info iconThis preview shows pages 1–29. Sign up to view the full content.

View Full Document Right Arrow Icon
Corporate Finance: The Core  (Berk/DeMarzo) Chapter 4  -  The Time Value of Money Use the table for the question(s) below. Year A B 0 - $150 - $225 1 40 175 2 80 125 3 100 - 50 6) 
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Draw a  timeline detailing the cash flows from investment "A."  Answer:  
Background image of page 2
Diff: 1  Topic: 4.1 The Timeline  Skill: Conceptual    7) 
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Draw a  timeline detailing the cash flows from investment "B."  Answer:  
Background image of page 4
Diff: 1  Topic: 4.1 The Timeline  Skill: Conceptual    Use the information for the question(s) below. Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay for their  child's college education.  Currently, college tuition, books, fees, and other costs, average $12,500 per year.  On average, tuition and  other costs have historically increased at a rate of 4% per year.   8) 
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Assume  that  college  costs  continue to increase an average of 4% per year and that all her college savings are invested in an account paying 7%  interest.  Draw a timeline that details the amount of money she will need to have in the future four each of her four years of  her undergraduate education.     Answer:  
Background image of page 6
$25,322.71 $25,322.71(1.04) 1 $25,322.71(1.04) 2 $25,322.71(1.04) 3 18 19 20 21 Note that the tuition  for the first year is  calculated as:  $12,5000(1.04) 18   = $25,322.71 
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Diff: 2  Topic: 4.1 The Timeline  Skill: Conceptual    9) 
Background image of page 8
Suppose  that a  young  couple  has just  had their first baby and they wish to insure that enough money will be available to pay for their child's college education.  They decide to make deposits into an educational savings account on each of their daughter's birthdays, starting with her  first birthday.  Assume that the educational savings account will return a constant 7%.  The parents deposit $2000 on their  daughter's first birthday and plan to increase the size of their deposits by 5% each year.  Draw a timeline that details the  amount that would be available for the daughter's college expenses on her 18th birthday.  Answer:  
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Diff: 2  Topic: 4.1 The Timeline  Skill: Analytical  3) 
Background image of page 10
Which of  the following statements is false?  A) 
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The process of  moving a value or cash flow backward in time is known as discounting.  B) 
Background image of page 12
FV   =   (1 ) n C r + C) 
Background image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The process of  moving a value or cash flow forward in time is known as compounding.  D) 
Background image of page 14
The value of a  cash flow that is moved forward in time is known as its future value.  Answer:  
Background image of page 15

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Explanation:  
Background image of page 16
A) 
Background image of page 17

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
D) 
Background image of page 18
Diff: 1  Topic: 4.2 The Three Rules of Time Travel  Skill: Conceptual    5) 
Background image of page 19

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Consider  the  following  timeline: If the current market rate of interest is 10%, then the future value of this timeline is closest to:  A) 
Background image of page 20
$666  B) 
Background image of page 21

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
$500  C) 
Background image of page 22
$605  D) 
Background image of page 23

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
$650  Answer:  
Background image of page 24
Explanation:  
Background image of page 25

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
A)  F
Background image of page 26
D) 
Background image of page 27

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Diff: 1  Topic: 4.2 The Three Rules of Time Travel  Skill: Analytical  7) 
Background image of page 28
Image of page 29
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/28/2009 for the course FEWEB CORPFIN taught by Professor Dorsman during the Spring '09 term at Vrije Universiteit Amsterdam.

Page1 / 205

Chapter_04_sol_students -...

This preview shows document pages 1 - 29. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online