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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 Spring '09
 HOLLAND
 Economics, Time Value Of Money, Mathematical finance, Acme, Inc, yr mo mo

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