the present value of a 4-year annuity‚ if the annual interest is 5%‚ and the annual payment is $1‚000? Q.5 You are given the option of receiving $1‚000 now or an annuity of $85 per month for 15 months. Which of the following is correct? a. You cannot choose between the two without computing present values. b. You cannot choose between the two without computing future values. c. You will always choose the lump sum payment. d. You will always choose the annuity. e. The choice you would make
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Chapter 5‚ 6 Review 1. You invested $1‚650 in an account that pays 5 percent simple interest. How much more could you have earned over a 20-year period if the interest had compounded annually? A. $849.22 B. $930.11 C. $982.19 D. $1‚021.15 E. $1‚077.94 2. Today‚ you earn a salary of $36‚000. What will be your annual salary twelve years from now if you earn annual raises of 3.6 percent? A. $55‚032.54 B. $57‚414.06 C. $58‚235.24 D. $59‚122.08 E. $59‚360.45 3. You hope to buy your dream
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D. 1. 2. 3. 4. 5. 6. INVESTMENT APPRAISAL The nature of investment decisions and the appraisal process Non-discounted cash flow techniques Discounted cash flow techniques Allowing for inflation and taxation in DCF Adjusting for risk and uncertainty in investment appraisal Specific investment decisions (lease or buy; asset replacement‚ capital rationing) The Nature of Investment Decisions and the Appraisal Process What is an investment? An investment is any expenditure in the expectation of
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Both approaches are straightforward extensions of our earlier analysis of single cash flows. 2. A series of constant cash flows that arrive or are paid at the end of each period is called an ordinary annuity‚ and we described some useful shortcuts for determining the present and future values of annuities. 3. Interest rates can be quoted in a variety of ways. For financial decisions‚ it is important that any rates being compared be first converted to effective rates. The relationship between a quoted
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2. Which one of the following statements is correct? A. The future value of an annuity is unaffected by the amount of each annuity payment. B. The present value of an annuity is unaffected by the number of the annuity payments. C. The present value of an annuity increases when the interest rate decreases. D. The present value of an annuity increases when the interest rate increases. E. The future value of an annuity increases when the interest rate decreases. 4. A debenture is: A. long-term debt
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3. (FV of annuity due) To finance your newborn daughter’s education you deposit $1‚200 a year at the beginning of each of the next 18 years in an account paying 8% annual interest. How much will be in the account at the end of the 18th year? A 1200 r 0.08 n 18 48535.51589 FV: $48‚535.52 4. (Rate of return of an annuity) Paul’s Perfect Peugeot says
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sense. Offer One includes additional monetary incentives depending on the success of the device‚ Offer Two proposes a percentage of profits that would increase as sales are expected to increase and the final offer is the setup of a trust fund in an annuity over the next eight years. For discussion purposes here‚ each offer will be calculated to find the present value and then summarized; the offer with the highest present value will be identified for Dr. Wolf to review. Offer OneIn this offer‚ Dr.
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Compounding Assumptions The TI BAII Plus has built-in preset assumptions about compounding and payment frequencies. Compounding and Payment frequencies are controlled with the [P/Y] key Financial Calculations on the Texas Instruments BAII Plus This is a first draft‚ and may contain errors. Feedback is appreciated © Copyright 2002‚ Alan Marshall 1 Compounding Assumptions For the first part of the Time Value of Money slides‚ we are dealing with annual compounding and annual
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wishes to accumulate funds to provide a retirement annuity for its vice president of research‚ Dorcas Lee. Miss Lee‚ by contract‚ will retire at the end of exactly 12 years. Upon retirement‚ she is entitled to receive an annual end-of-year payment of RM42‚000 for exactly 20 years. If she dies prior to the end of the 20-year period‚ the annual payments will pass to her heirs. During the 12-year “accumulation period‚” Nilai wishes to fund the annuity by making equal‚ annual‚ end-of-year deposits into
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Time Value of Money Practice Problems − Solutions Dr. Stanley D. Longhofer 1) Jim makes a deposit of $12‚000 in a bank account. The deposit is to earn interest annually at the rate of 9 percent for seven years. a) How much will Jim have on deposit at the end of seven years? P/Y = 1‚ N = 7‚ I = 9‚ PV = 12‚000‚ PMT = 0 ⇒ FV = $21‚936.47 b) Assuming the deposit earned a 9 percent rate of interest compounded quarterly‚ how much would he have at the end of seven years? P/Y = 4‚ N = 7 × 4 = 28 ⇒ FV =
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