This document contains solutions to practice problems involving time value of money calculations, including future and present value of lump sums, annuities, and uneven cash flows. It finds the future and present value of various cash flows when given the interest rate and time period, using the relevant time value of money formulas. The document demonstrates calculating present and future value for lump sums invested or received for 1 and 5 years at 8%, and annuities of $400 and $200 per year for 10 and 5 years at 10% and 5%. It also finds present and future values for uneven cash flows over 5 years at 10%.
This document contains solutions to practice problems involving time value of money calculations, including future and present value of lump sums, annuities, and uneven cash flows. It finds the future and present value of various cash flows when given the interest rate and time period, using the relevant time value of money formulas. The document demonstrates calculating present and future value for lump sums invested or received for 1 and 5 years at 8%, and annuities of $400 and $200 per year for 10 and 5 years at 10% and 5%. It also finds present and future values for uneven cash flows over 5 years at 10%.
This document contains solutions to practice problems involving time value of money calculations, including future and present value of lump sums, annuities, and uneven cash flows. It finds the future and present value of various cash flows when given the interest rate and time period, using the relevant time value of money formulas. The document demonstrates calculating present and future value for lump sums invested or received for 1 and 5 years at 8%, and annuities of $400 and $200 per year for 10 and 5 years at 10% and 5%. It also finds present and future values for uneven cash flows over 5 years at 10%.
This document contains solutions to practice problems involving time value of money calculations, including future and present value of lump sums, annuities, and uneven cash flows. It finds the future and present value of various cash flows when given the interest rate and time period, using the relevant time value of money formulas. The document demonstrates calculating present and future value for lump sums invested or received for 1 and 5 years at 8%, and annuities of $400 and $200 per year for 10 and 5 years at 10% and 5%. It also finds present and future values for uneven cash flows over 5 years at 10%.
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The document discusses problems related to calculating present and future values of lump sums and annuities using compound interest formulas. It also covers calculating the present and future value of uneven cash flows.
The problems cover calculating future and present values of lump sums, annuities, and uneven cash flows over different time periods with varying interest rates.
To calculate present value, the cash flows are discounted using the present value interest factor formula. To calculate future value, the cash flows are grown using the future value interest factor formula. The interest rate and time period are key inputs to these formulas.
Kristen Brown
Professor Laura Forbes
Financial Management June 10, 2014
Problem 9.1: Find the following values for a lump sum assuming annual compounding: A. The future value of $500 invested at 8 percent for one year. The answer is going to be $540. B. The future value of $500 invested at 8 percent for five years. The answer is going to be $734.66. C. The present value of $500 to be received in one year when the opportunity cost rate is 8 percent. The answer is going to be $462.96. D. The present value is $500 to be received in five years when the opportunity cost rate is 8 percent The answer is going to be $340.29. Problem 9.4: Find the following values assuming a regular, or ordinary, annuity: A. The present value of $400 per year for ten years at 10 percent. The answer is going to be $2457.83. B. The future value of $400 per year for ten years at 10 percent. The answer is going to be $6374.97. C. The present value of $200 per year for five years at 5 percent. The answer is going to be $865.90. D. The future value of $200 per year for five years at 5 percent. The answer is going to be $1105.13. Problem 9.6: Consider the following uneven cash flow stream: Year Cash Flow 0 $ 0 1 250 2 400 3 500 4 600 5 600
A. What is the present (Year 0) value if the opportunity cost (discount) rate is 10 percent? The answer is going to be $1,716.00 Cash Flow PVIF PV 250 0.909091 227.2727 400 0.826446 330.5785 500 0.751315 375.6574 600 0.683013 409.8081 600 0.620921 372.5528 1716
B. Add an outflow (or cost) of $1,000 at Year 0. What is the present value (or net value) of the stream? The answer is going to be $716.00. 1716.00-1000= 716.00
Problem 9.7: Consider another uneven cash flow stream: Year Cash Flow 0 $2,000 1 2,000 2 0 3 1,500 4 2,500 5 4,000 A. What is the present (Year 0) value of the cash flow stream if the opportunity cost rate is 10 percent? The answer is going to be $9,136.37. Cash Flow PVIF PV 2000 1 2000 2000 0.909091 1818.182 0 0.826446 0 1500 0.751315 1126.972 2500 0.683013 1707.534 4000 0.620921 2483.685 9136
B. What is the future (Year 5) value of the cash flow stream if the cash flows are invested in an account that pays 10 percent annually? The answer is going to be $14,714.22
Problem 9.9: Assume that you just won $35 million in the Florida lottery, and hence the state will pay you 20 annual payments of $1.75 million each beginning immediately. If the rate of return on securities of similar risk to the lottery earnings (e.g. the rate of 20-year U.S. Treasury Bonds) is 6 percent, what is the present value of your winnings? The answer is going to be $21.28 million. 1.75*12.1581=21.24