"Time Value of Money - In Class Exercises

"Time Value of Money - In Class Exercises - Time...

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Time Value of Money Econ 415 – Spring 2010 1) A discount bond offers par or face value of $10,000 at maturity 20 years from today. If the bond sells for $3,952.93 its annual interest yield equals ________ percent. 2) Wholesome Holographics, Inc. is contemplating two investment projects. The table below lists the costs of the project today and projected increases in profits at the end of the next two years: Project Cost (Today) Increased Profits (End of Year 1) Increased Profits (End of Year 2) A 50,000 10,000 50,000 B 75,000 74,000 10,000 What is the range of interest rates for which project A is more profitable than project B? Project B is more profitable than project A? Neither project is profitable? 3) Current profits for Acme, Inc are $105,900. The firm’s profits are expected to grow into an indefinite future at a rate equal to 4.2 percent per year. The current interest rate equals 5.4 percent. What is the market value of Acme, Inc. before it pays dividends? After it pays dividends? 4)
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