Monday, February 25, 2013

Time Value of Money

Time Value of Money Exercises

1. What is the balance in an enthronisation account at the difference of 10 years if $5,000 is invested straight off and the account understands 8% interest compounded annually? What would the encourage be after 50 years? After vitamin C years?

2. What is the present value of the following future amounts:

next ValueDiscount rateNumber of periods
$15,0006%5
$37,0009%10
$596,00011%4
$1,178,0009.5%12

3. Calculate the present value of the following silver inflows assuming an 11% discount rate.
Yearcash flow
117,000
217,000
317,000
417,000
517,000
6100,000



4. knock over the following two mutually exclusive projects

YearCash Flow see to it 1Cash Flow Project 2
0-150,000-150,000
1$40,000$100,000
2$90,000$80,000
3$120,000$60,000

a) Calculate the bring in present value (NPV) of individually project assuming an 8% discount rate.

b) Calculate the Internal Rate of Return (IRR) for each project.




5. Anne Jones checked her lottery ticket once again. The numbers matched; she had win the $10,000,000 grand prize.

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The lottery provided two plectrums for payment of the grand prize. First, the winner could take $1,000,000 immediately, with the remainder payable in $1,000,000 instalments over ix years, starting one year from now. The alternative payment option was an immediate lump sum payment of $7,000,000.




Anne believes that she can earn a rate of return of 7 per cent on any money she receives.

a) Which payment option would you suggest that Anne allot?




b) What Interest rate would make these two options equivalent?




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