1. Why is it necessary to know about time value of money concepts? Why can't you just make judgments about future cash flows based purely on the size of the cash flows?
2. Define Future Value.
3. Define Present Value.
4. What are annuities?
5. (calculating future value) You buy an 8 year, 7% CD for $1,000. Interest is compounded annually. How much is it worth at maturity?
6. (calculating present value) What's the present value of $10,000 to be received in 6 years? (Your required rate of return is 10% a year.)
7. (calculating the rate of return) A friend promises to pay you $500 three years from now if you loan him $400 today. What interest rate is your friend offering you?