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    Week6Assignment Brown K

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    katkris2001
    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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    Week6Assignment Brown K

    Uploaded by

    katkris2001
    2K views4 pages
    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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    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%.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    2K views4 pages

    Week6Assignment Brown K

    Uploaded by

    katkris2001
    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%.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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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

    Cash Flow FVIF FV
    2000 1.61051 3221.02
    2000 1.4641 2928.2
    0 1.331 0
    1500 1.21 1815
    2500 1.1 2750
    4000 1 4000
    14714


    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

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