Chapter 6 Discounted Cash Flow Valuation
Chapter 06 Quiz
Remember: For nonannual compounding, make these changes: multiply the “N”, divide the “I”, and divide the “PMT” (If it’s
an annuity)
________
1.
You are able to pay mortgage payments of $675 a month for thirty years. The interest rate is 9.5 percent,
compounded monthly. What price house can you afford to buy if you have $5,000 cash available as a down
payment?
a. $72,712.50
b. $75,275.51
c. $80,275.51
d. $85,275.51
________
2.
You are going to receive $6,000 at the end of each quarter for the next five years. What is the net
present value of these payments at a discount rate of 7 percent, compounded quarterly?
________
3.
You want to retire on the day you have $1,000,000 in your savings account. You expect to earn 4 percent,
compounded monthly, on your money during your retirement. Your plan is to withdraw $4,500 a month as
retirement income from this account. How many years can you be retired until you run out of money?
________
4.
A preferred stock pays annual dividends of $1.75. How much are you willing to pay today to buy one share
of this stock if you want to earn a 12.5 percent rate of return?
________
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 Spring '11
 Richey,GregM
 Finance, Annuity, Compounding, Net Present Value, Valuation, Internal rate of return, cash flow valuation

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