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Single Cash flow: present value You currently have AED 40.000 and plans to purchase a 5-year certificate of deposit (CD) A-how much will pay have...

Single Cash flow: present value

  1. You currently have AED 40.000 and plans to purchase a 5-year certificate of deposit (CD) 
  2. A-how much will pay have when the CD measures if it pays 7% interest. compounded annually
  3. b-how much will you have to pay when CD measures if it pays 6% or 20%, compounded annually   
  • c- how much will you have when CD measures if it pays 6% or 20% interest compounded semi-annually 

d- why dose the annual compounding and semi-annual compounding give different answers? Would you prefer annual compound or semi-annual compounding or quarterly  compounded for you investment

 

E- how much will you have when the CD measures if you have a 10 years CD that pays 7% interest, compounded annually?

 

F- Do you observe any relationship between the period of investment and the future value

 

 

 

Single cash flow: present value

2- You just received notification that you have won the AED 5 million first prize in Emirates Future Oriented Lottery". However, the prize will be awarded on your 60th holiday (assuming you are around to collect), 40 years from now, what is the present value of your windfall if the appropriate discount rate is 8 percent?


 

Multiple cash flows, future value

3- you are planning to deposit into your bank deposit account AED 1000 at the end of 1 year, AED 2000 at the end of year 2, and AED 3000 at the end of year 3, What will be the value of your investment at the end of year 4, if the interest rate is 9%

Interest rate 9%


 

 

 

 

Multiple cash flow present value

4- an investment will pay AED1000 at the end of the next 4 years. AED2000 at the end of year5 and AED3000 at the end of year 6. If other investment of equal risk earns 7%. What is the investment's present value?

interest rate 7%

 

 

 

 

Annuities Future Value

5- Find the future values of the following ordinary annuities

  1. FV of 1000 each year for 5 years at a nominal rate of 12%, compounded annually
  2. FV of 500 each 6 month for 5 years at nominal rate of 12% compounded annually
  3.  FV of 250 each 6 month for 5 years at nominal rate of 12% compounded annually
  4. The annuities described in parts a, b , c have the same amount of money paid into them during 5- years period, and earn interest at the some nominal rate. Is the future value same or different, If different? What is the reason

 

Annuities, present value

6- Your uncle named you as the beneficiary of his life insurance policy. The insurance company gives you a choice of AED 500.000 today or a 15-yearss annuity of 30.0000 at the end of each years. Which one will you accept, if the discount rate is 7%. Why

 

Perpetuity

7- what is the present value of a perpetuity of AED 10000 per year if the appropriate discount rate is 6%


B - If interest rate is general were double and the appropriate discount rate rose to 12%, what would happen to the present value of the perpetuity ?

Discount rate 12%

1000*

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