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Exam 4: The Time Value of Money

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Question 51

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If the current rate of interest is 8% APR, then the present value of an investment that pays $250 per quarter and lasts 20 years is closest to:

A) $18,519
B) $48,443
C) $9,936
D) $20,000

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Question 52

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If the current rate of interest is 8%, then the future value 20 years from now of an investment that pays $1000 per year and lasts 20 years is closest to:

A) $45,762
B) $36,725
C) $9,818
D) $93,219

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Question 53

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Use the figure for the question(s) below. -Which of the following statements regarding the timeline is FALSE?

Consider the following timeline detailing a stream of cash flows: If the current market rate of interest is 10%, then the present value of this stream of cash flows is closest to:

Which of the following statements regarding perpetuities is FALSE?

Use the information for the question(s) below. Joe just inherited the family business, and having no desire to run the family business, he has decided to sell it to an entrepreneur. In exchange for the family business, Joe has been offered an immediate payment of $100,000. Joe will also receive payments of $50,000 in one year, $50,000 in two years, and $75,000 in three years. The current market rate of interest for Joe is 6%. -Draw a timeline detailing Joe's cash flows from the sale of the family business.

Which of the following statements regarding growing annuities is FALSE?

Use the following timeline to answer the question(s) below. 0 1 2 3 $600 $1,200 $1,800 -Taggart Transcontinental currently has a bank loan outstanding that requires it to make three annual payments at the end of the next three years of $1,000,000 each. The bank has offered to allow Taggart Transcontinental to skip making the next two payments in lieu of making one large payment at the end of the loan's term in three years. If the interest rate on the loan is 6%, then the final payment that the bank will require to make Taggart Transcontinental indifferent between the two forms of payments is closest to:

Which of the following is NOT a valid time value of money function in Excel?