Quiz2Solution - Quiz #2 Solutions: Module 1, Time Value of...

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Quiz #2 Solutions: Module 1, Time Value of Money FIN 5405 J. Houston 1. Rate of return on a perpetuity Answer: b Cost (PV) $1,500 PMT $105 I/YR 7.00% Divide PMT by Cost. 2. PV of an uneven cash flow stream Answer: c I/YR = 5% 0 1 2 3 CFs: $1,000 $2,000 $3,000 $5,000 PV of CFs: $1,000 $1,904.76 $2,721.09 $4,319.19 PV = $9,945.04 Found by summing individual PVs. PV = $9,945.04 Found with a calculator or Excel to automate the process. With a calculator, input the cash flows and I into the cash flow register, then press the NPV key. 3. FV of a lump sum, semiannually Answer: e Years 3 N = Periods = years x periods/yr = 6 Periods/Yr 2 PMT $0 Nom. I/YR 8.00% I/Period = Nom. I/Periods per year = 4.00% PV $2,000 FV $2,530.64 Could be found using a calculator, the equation, or Excel. Note that we must first convert to periods and rate per period. 4. Interest rate built into an uneven cash flow stream Answer: a 0 1 2 3 4 5 CFs: -$1,000 $50 $50 $50 $50 $1,050 I/YR 5.0% I is the discount rate that causes the PV of the inflows to equal the initial negative CF, and is found with Excel's IRR function or by inputting the CFs into a calculator and pressing the IRR key. 5.
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This note was uploaded on 12/30/2010 for the course FIN 5405 taught by Professor Tapley during the Spring '08 term at University of Florida.

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Quiz2Solution - Quiz #2 Solutions: Module 1, Time Value of...

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