Quiz2Solution

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

This preview shows pages 1–2. Sign up to view the full content.

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.

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## 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.

### Page1 / 3

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

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online