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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
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View Full Document5.
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
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 Spring '08
 Bilido

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