Week 6 Homework 2024 Fbeavers
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Webster University *
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5200 OF F1
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Finance
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May 7, 2024
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Week 6 homework 2024
1.
What term does the textbook use to describe the value of an investment after one or more periods?
Future value.
2.
What term does the textbook use to describe the amount a future cash flow is worth today?
Present Value
3.
What term does the textbook use to describe a graphical representation showing the size and timing of cash flows through time. Timeline
4.
What is the rule of 72?
To estimate the number of years required to double your money at a given annual rate of return.
5.
According to the lecture, when we hear people speak of the time value of money, what are they really saying?
Dollars to be received or paid at different times are worth different amounts today.
6.
According to the textbook, Albert Einstein is supposed to have identified the most powerful force in the universe as what? Compound Interest.
7.
Explain how compounding can create wealth over time.
Generating interest on interest is what leads to accumulating wealth overtime.
8.
What is an amortization schedule?
An amortization schedule tells you exactly what you'll be paying each month for your mortgage.
Calculations
9. What is the present value of $100,000 to be received in 15 years? Your required rate of return
is 9% per year.
PV=FV/(1+r) ^n
PV= 100,000/(1+0.09)^15
PV=100,000/(1.09)^15
PV=100,000/4.73263
PV=21,110.91
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Related Questions
year
cash flow
1
1375
2
1495
3
1580
4
1630
If the discount rate is 8 percent, what is the future value of the cash flows in year 4? (show using financial calculator please)
arrow_forward
Question content area top
Part 1
(Present value of complex cash flows) How much do you have to deposit today so that beginning 11 years from now you can withdraw
$15,000
a year for the next
6
years (periods 11 through
16)
plus an additional amount of
$30,000
in the last year (period
16)?
Assume an interest rate of
9
percent.
Question content area bottom
Part 1
The amount of money you have to deposit today is
$enter your response here.
(Round to the nearest cent.)
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4. Future value of annuities
There are two categories of cash flows: single cash flows, referred to as "lump sums," and annuities. Based on your
understanding of annuities, answer the following questions.
Which of the following statements about annuities are true? Check all that apply
Ordinary annuities make fixed payments at the beginning of each period for a certain time period.
An annuity due is an annuity that makes a payment at the beginning of each period for a certain time period.
An annuity due earns more interest than an ordinary annuity of equal time.
An annuity is a series of equal payments made at fixed intervals for a specified number of periods
Which of the following is an example of an annuity?
0 A job contract that pays a regular monthly salary for three years
O A job contract that pays an hourly wage based on the work done on a particular day
Katie had a high monthly food bill before she decided to cook at home every day in order to reduce her expenses.
She starts to…
arrow_forward
Question content area top
Part 1
(Present value of complex cash flows) You have an opportunity to make an investment that will pay
$300
at the end of the first year,
$100
at the end of the second year,
$500
at the end of the third year,
$300
at the end of the fourth year, and
$400
at the end of the fifth year.
a. Find the present value if the interest rate is
12
percent. (Hint: You can simply bring each cash flow back to the present and then add them up. Another way to work this problem is to either use the
=NPV
function in Excel or to use your CF key on a financial
calculator—but
you'll want to check your calculator's manual before you use this key. Keep in mind that with the
=NPV
function in Excel, there is no initial outlay. That is, all this function does is bring all the future cash flows back to the present. With a financial calculator, you should keep in mind that
CF0
is the initial outlay or cash flow at time 0, and, because there is no cash flow at time…
arrow_forward
Question 1
Q1(a) Create simple examples to illustrate the following concepts.
i.
Time value of money
ii.
Effective interest
Sinking Fund
111.
iv.
Amortized loan
Q1(b) Assuming you will be able to deposit GHC6000 at the end of each of the next four years in a bank account
paying 9% interest. You currently have GHC6000 in the account. How much will you have in four years?
Q1(c) After carefully going over your budget, you have determined you can afford to pay GHC854 per month
toward a new car. You call up your local bank and find out that the going rate is 1% per month for 48 months.
How much can you borrow?
Q1(d) Suppose, a business takes out a GHC7000, 7-year loan at 9%. If the loan agreement calls for the borrower
to pay the interest on the loan balance each year and to reduce the loan balance each year by GHC 1000. How
would the loan repayment be? Illustrate with the aid of a table.
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Year
Cash Flow
1
$
1,375
2
1,495
3
1,580
4
1,630
If the discount rate is 8 percent, what is the future value of the cash flows in year 4?
If the discount rate is 11 percent, what is the future value of the cash flows in year 4?
If the discount rate is 24 percent, what is the future value of the cash flows in year 4?
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Consider the following cash flows:
Year
Cash Flow
2
$
22,800
3
40,800
5
58,800
Assume an interest rate of 9.6 percent per year.
a.
If today is Year 0, what is the future value of the cash flows five years from now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.
If today is Year 0, what is the future value of the cash flows ten years from now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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Please solve using time value of money table.
Thank You!
t
2
4
5
$
100
-1000
400
300
-100
i
2%
2%
5%
5%
4%
4%
a. Draw the corresponding Cash Flow Diagram. Note that the interest rate applies between the
period i is assigned to and the next one.
b. What is the present worth of this cash flow (i.e., at t = 0)
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Question 3)
Suppose that next three years you will receive $100, $200, and $300 at the end of the first, second,
and the third years, respectively. Assume that the yearly interest rate is %12.
(a) Calculate the present value of this cash flow stream. (7 p.)
(b) Calculate the annual equivalent of this cash flow stream. (4 p.)
(c) Solve the questions in (a) and (b), if you receive the same amount of money, $100, at the end
of each year. (3 p. + 1 p.)
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Question 1
How much money should be deposited each year for 6 years starting 1 year from today, if you wish to withdraw $5604 each
year for 9 years, beginning at the end of 15 years? Let i=12% per year.
Round your answer to 2 decimal places.
Upload the picture of your solution in Question 1 including cash flow diagram.
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4. Present value
Finding a present value is the reverse of finding a future value.
A. is the process of calculating the present value of a cash flow or a series of cash flows to be received in the future.
B. Which of the following investments that pay will $17,500 in 8 years will have a lower price today?
The security that earns an interest rate of 4.00%.
The security that earns an interest rate of 6.00%.
C. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 5.40%. Assuming that both investments have equal risk and Eric’s investment time horizon is flexible, which of the following investment options will exhibit the lower price?
An investment that matures in four years
An investment that matures in five years
D. Which of the following is true about present value calculations?
Other things remaining equal, the…
arrow_forward
4. Present value
Finding a present value is the reverse of finding a future value.
A. is the process of calculating the present value of a cash flow or a series of cash flows to be received in the future.
B. Which of the following investments that pay will $17,500 in 8 years will have a lower price today?
The security that earns an interest rate of 4.00%.
The security that earns an interest rate of 6.00%.
C. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 5.40%. Assuming that both investments have equal risk and Eric’s investment time horizon is flexible, which of the following investment options will exhibit the lower price?
An investment that matures in four years
An investment that matures in five years
D. Which of the following is true about present value calculations?
Other things remaining equal, the…
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Year
Cash Flow
0
–$
17,200
1
9,500
2
8,400
3
4,900
a.
What is the profitability index for the set of cash flows if the relevant discount rate is 10 percent?
b.
What is the profitability index for the set of cash flows if the relevant discount rate is 15 percent?
c.
What is the profitability index for the set of cash flows if the relevant discount rate is 22 percent?
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QUESTION 13
For a given cash flow diagram, if the interest rate i=10%, and A=$600, the F value is closest to:
F=?
A
Years
2
3
i=10 %
P=$ 4000
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1. 1: Time Value of Money: Introduction
A dollar in hand today is worth -Select- ✓a dollar to be received in the future because if you had it now you could invest that dollar and Select-
interest. Of all the techniques used in finance, none is more important than the concept of time value of money (TVM), also called
-Select-
analysis. Time value analysis has many applications including retirement planning, stock and bond valuation, loan amortization
and capital budgeting analysis. Time value of money uses the concept of compound interest rather than simple interest.
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Question:
Use the following information to answer the next two questions:
You deposited the following stream of cash flow at the end of the year:
Year deposit rate of interest 1 5000 8%
4 4000 8.5%
6 7000 10%
What will be the total amount in your account at the end of 6 years?
2. What is the present value of your deposit?
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Finding a present value is the reverse of finding a future value.
Which of the following is true about finding the present value of cash flows?
O Finding the present value of cash flows tells you what a cash flow will be worth in future years at a specified rate of return.
O Finding the present value of cash flows tells you how much you need to invest today so that it grows to a given future amount at a
specified rate of return.
Which of the following investments that pay will $15,500 in 8 years will have a lower price today?
O The security that earns an interest rate of 5.50%.
O The security that earns an interest rate of 8.25%.
Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is
6.80%. Assuming that both investments have equal risk and Eric's investment time horizon is flexible, which of the following investment options will
exhibit the lower price?
O An investment that matures in six…
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5. Present value
1. To find the present value of a cash flow expected to be paid or received in the future, you will _________ the future value cash flow by
2. What is the value today of a $12,000 cash flow expected to be received seventeen years from now based on an annual interest rate of 7%?
$37,906
$5,888
$3,799
$4,749
3. Your broker called earlier today and offered you the opportunity to invest in a security. As a friend, she suggested that you compare the current, or present value, cost of the security and the discounted value of its expected future cash flows before deciding whether or not to invest.
The decision rule that should be used to decide whether or not to invest should be:
everything else being equal, you should invest if the discounted value of the security’s expected future cash flows is greater than or equal to the current cost of the security.
everything else being equal, you should invest if the discounted value of the security’s expected future…
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QI. KNOWLEDGE AND UNDERSTANDING
DRAWING CASH FLOW DIAGRAM
Draw the
ww m mm
cash flow diagram for the following :
1. Assume that you want to deposit an amount (BD120,000.00) into an account three
years from now in order to be able to withdraw BD750 per year for ten years
starting four years from now. Assume that the interest rate is 4.5% per year.
Construct the cash flow diagram.
2. Suppose that you want to make a deposit into your account now such that you can
withdraw an equal amount (A1) of BD300 per year for the first five years starting
one year after your deposit and a different annual amount (A2) of BD600 per year
for the following three years. With an interest rate (i) of 5.5% per year, construct the
cash flow diagram.
3. If you deposit BD1,500 now, BD3,600 three years, BD2000 seven years, and
BD1,800 nine years from now in a savings account that pays 10% interest, how
much would you have at the end of year 25? Construct the cash flow diagram.
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An investment has the following expected cash flows:
Year
2
3
Cash Flows
$10,033
$20,003
30,000
The discount rate is 8 percent. The investment's future value at the end of year
3 is $ ___(keep two decimal places)
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5. Present value To find the present value of a cash flow expected to be paid or received in the future, you will the future value cash flow by
(1+1)N What is the value today of a $42, 000 cash flow expected to be received 17 years from now based on an annual interest rate of 7% ? $13,296 $10,637 $132, 670 $20, 609 Your broker called carfier today and offered you the opportunity to invest in a security. As a friend, he suggested that you compare the current, or present value, cost of the security and the discounted value of its expected future cash flows before deciding whether or not to invest. The decision rule that should be used to decide whether or not to invest should be. Everything else being equal, you should invest if the discounted value of the security's expected future cash flows is greater than or equal to the current cost of the security. Everything else being equal, you should invest if the current cost of the security is greater than the present value of the security's…
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Suppose you are given the following cash flow stream. If the interest rate is 20 percent, what
is the future value of this cash flow stream at the end of Year 3?
Year CF
10
$0
1
$344
2
$314
3
$290
Enter your answer rounded off to two decimal places. Do not enter $ in the answer box.
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Question 12 of 28
Use these present value factors to answer the following question:
Present Value of $1
Discounted at 6% per
Periods
Period
0.943
2
0.890
3
0.840
0.792
4
5
0.747
If an individual deposits $20600 in a savings account today, what amount of cash would be available two years from toda
O $20600÷0.943 × 2
$20600 x 0.890
$20600 0.890
$20600 x 0.890 × 2
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A Question 1
Suppose you are offered an investment that will allow you to triple your money in 8
years. What is the implied rate of interest?
Retake question
O 14.72 percent
O
9.26 percent
Not enough information
11.61 percent
8.50 percent
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View Policies
Current Attempt in Progress
Write a formula for the quantity described.
The balance in an interest-bearing bank account,
if the balance triples in 20 years.
Let Bo be the initial balance and t be the number of years.
NOTE: Round your answer to three decimal places.
B =
IT
||
eTextbook and Media
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2. Present value
Aa Aa
Finding a present value is the reverse of finding a future value.
Which of the following is true about finding the present value of cash flows?
O Finding the present value of cash flows tells you what a cash flow will be worth in future years at a specified
rate of return.
O Finding the present value of cash flows tells you how much you need to invest today so that it grows to a
given future amount at a specified rate of return.
Which of the following investments that pay will $13,500 in 13 years will have a higher price today?
The security that earns an interest rate of 7.00%.
The security that earns an interest rate of 10.50%.
Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest
rate) of holding the security is 12.40%. Assuming that both investments have equal risk and Eric's investment time
horizon is flexible, which of the following investment options will exhibit the lower price?
O An investment…
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