CH 3 Review

CH 3 Review - Time value of money Basics review 1 You will...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Time value of money Basics – review 1. You will receive $10,000 in 15 years. If the discount rate is 18% compounded quarterly, the present value is closest to: a. $0.48 b. $712.89 c. $835.16 d. $50,916 2. Assume an investment that costs $50,000 will pay $5,000 per year for the first 5 years and $20,000 per year for the next 3 years. If the hurdle rate is 8%, should you invest in the project? a. Yes, the IRR of 9.93% is greater than the hurdle rate of 8% b. No, the IRR of 9.93% is greater than the hurdle rate of 8% c. Cannot make recommendation without having the appropriate discount rate. 3. The bank has provided you with quotes on two products: product 1 promises a rate of 8% compounded monthly while product 2 promises you 4% compounded quarterly. The effective annual rate for each product is closest to: Product 1 ; Product 2 a. 2.52% ; 1.17% b. 8.00% ; 4.00% c. 8.30% ; 4.06% d. 8.24% ; 4.07% 4. An effective annual rate of 14% is closest to _________% compounded quarterly? a. 3.33% b. 3.50% c. 13.32% d. 14.00% e. 14.75% 1
Background image of page 1

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

View Full DocumentRight Arrow Icon
5. A 15 year annuity pays $5,000 per year. If the discount rate is 6% per year, then the future and present values (respectively) are closest to: Future value ; Present value a. $48,561 ; $116,380 b. $116,380 ; $48,561 c. $116,380 ; $97,122 d. $232,760 ; $48,561 6. The XYZ Company is considering an investment which will pay $8,000 per year for the next 10 years and $18,000 in year 11. The investment will cost $25,000 today. If the discount rate is 14% compounded semiannually, the net present value (NPV) of the investment is closest to: a. $20,000 b. $21,000 c. $41,000 d. $43,000 e. $71,000 7. The ABC Company has borrowed $50,000 from the CDS Loan Company. ABC will repay the loan in 20 monthly payments of $3,000. The payments are due at
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/14/2011 for the course MIME 310 taught by Professor Bilido during the Spring '08 term at McGill.

Page1 / 5

CH 3 Review - Time value of money Basics review 1 You will...

This preview shows document pages 1 - 3. Sign up to view the full document.

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