Spring 2011 Exam 1 Review
1.
Assume that you are calculating the future value of an annuity that pays $150 in
each of Years 15.
Also assume that the annual required rate of return
associated with this annuity is 12 percent.
What is the dollar difference between
calculating the future value of this annuity as an annuity due versus an ordinary
annuity?
2.
Assume that you are given the following cash flows:
Year 3 = $100; Year 4 =
$200; Year 5 = $300.
At a 10% interest rate, what is the total value of these
three cash flows, evaluated as of Year 20?
3.
Assume that you are approached by someone who is offering to sell you a zero
coupon bond that has 5 years until maturity. The face value of the bond is $1000,
and you believe the fair interest rate to be 6%. Determine the current price of this
bond.
A. $741.37
B. $747.26
C. $754.78
D. $766.45
E. $1007.23
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4.
Assume that you have been offered an investment that pays $450 at the end of
every 6 months for the next 5 years (10 payments).
The nominal interest rate is
12 percent; however, interest is compounded quarterly.
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 Spring '06
 Tapley
 Finance, Time Value Of Money, Annuity, Future Value, Interest

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