TVM Problem set

# TVM Problem set - Time Value of Money single sums 1 a Find...

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Time Value of Money - single sums 1. Find the future value of the following: a) \$100,000 for 10 years at 12% compounded annually. b) \$100,000 for 10 years at 12% compounded quarterly. c) \$100,000 for 10 years at 12% compounded monthly. d) \$100,000 for 10 years at 12% compounded daily. 2. If you can earn 10% on your funds, which of the following would you prefer? a) \$500,000 today, b) \$750,000 five years from now, c) \$1,000,000 10 years from now, or d) \$5,000,000 25 years from now

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Time Value of Money - cash flow streams 1. If your opportunity cost of funds is 12%, which of the following cash flow streams would you prefer? End of Investment Year A B C 1 \$50,000 \$80,000 2 50,000 3 50,000 4 50,000 \$50,000 60,000 5 50,000 50,000 6 50,000 7 50,000 8 50,000 140,000 9 50,000 2. If your opportunity cost is 12%, which of the following annuities would you prefer? a) Annuity A costs \$80,000 now and pays you \$1,000 per month for 12 years. b) Annuity B costs \$80,000 now and pays you \$2,500 at the beginning of each quarter for 25 years.
3. In 1987, Chirag Keith won the New York state lottery, which entitled him to receive 21 annual installments of \$240,245 each. Unfortunately, Mr. Keith died after receiving only two installments.

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