CH 3 Review

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

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

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