Time Value of Money Multiple Cash Flows Q

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Time Value of Money Multiple Cash Flows

Time Value of Money Multiple Cash Flows

Q 1) • First City Bank pays 7 percent simple interest on its savings

Q 1) • First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City Bank pays 7 percent interest compounded annually. If you made a deposit of $16, 500 in each bank, how much more money would you earn from your Second City Bank account at the end of 12 years?

Q 2) • For each of the following, compute the present value: Present Value

Q 2) • For each of the following, compute the present value: Present Value Interest Rate Years ? 11 5 % Future Value $ 18, 628 ? 3 10 42, 817 ? 15 13 803, 382 ? 20 12 660, 816

Q 3) • You’re trying to save to buy a new $205, 000 Ferrari.

Q 3) • You’re trying to save to buy a new $205, 000 Ferrari. You have $34, 000 today that can be invested at your bank. The bank pays 4. 1 percent annual interest on its accounts. How long will it be before you have enough to buy the car?

Q 4) • Investment X offers to pay you $7, 900 per year for

Q 4) • Investment X offers to pay you $7, 900 per year for 9 years, whereas Investment Y offers to pay you $10, 800 per year for 5 years. Ø If the discount rate is 8 percent, what is the present value of these cash flows? Ø If the discount rate is 20 percent, what is the present value of these cash flows?

Q 5) • Eulis Co. has identified an investment project with the following cash

Q 5) • Eulis Co. has identified an investment project with the following cash flows Year Cash Flow 1 $1, 070 2 910 3 1, 480 4 1, 840 Ø If the discount rate is 11 percent, what is the present value of these cash flows? Ø What is the present value at 16 percent? Ø What is the present value at 22 percent