Question 1: The rate of return on a 30-year investment is 4.35%. What is the present value of this investment if it pays $100,000 30 years later?
Question 2: You started an education fund for your child. You are expecting him/her to attend college 18 years from now. According to statistics, the expected amount you will need 18 years later should be $300,000. If the fund provides a rate of return of 10% per year, compounded annually, and no additional contribution is made to the fund, how much do you need to deposit today to meet your need 18 years later?
Question 3: You have $50,000 to start an education fund for your child. You are expecting him/her to attend college 18 years from now. According to statistics, the expected amount you will need 18 years later should be $300,000. What is the required rate of return of your fund in order to meet your need 18 years from now? (Write your answer in decimal format, for example, write 0.05 for 5%)
Question 4: The required rate of return of an investor is 8.5%. An investment provides the following cash flow:
|
Year
|
Cash Flow
|
|
1
|
$5000
|
|
2
|
$6400
|
|
3
|
$9000
|
What is the present value of this investment?
Question 5: You received a promotional mail from your banking advertising a new credit card with a stated rate of 15.99% per year. What is the effective annual interest rate of this credit card that compounds monthly?
Given $100, you are interested in how much money will you get 1 years later with different frequency of compounding. If the stated annual rate is 10%, complete the following table (Use decimal format for percentages. For example, 5% should be written as 0.05) . For dollar amounts, round your answers to 2 decimal places; for effective rates, round your answer to 4 decimal places.
|
Compounding
Period
|
Future Value
of $100
|
Effective
Annual Rate
|
|
1 year
|
110.00
|
0.10
|
|
Semi-annual
|
|
|
|
Quarterly
|
|
|
|
Monthly
|
|
|
|
Continuously
|
|
|
Question 6: Given the following yield curve, what is the two-year forward rate 3 years from now? Use decimal format in your answer. For example, 5% should be written as 0.05. Keep 4 decimal places for your answer.
|
Maturity
|
Annual Rate
|
|
1 yr
|
0.28%
|
|
3 yr
|
1.10%
|
|
5 yr
|
1.71%
|
Question 7: An 20-year annuity pays $500 a year at year end. If the annuity's first cash flow starts at the end of year 1 and the interest rate is 4%, what is the present value of this annuity?
Question 8: You just won a lottery of $1,000,000. The lottery payment is made in the form of an annuity due with the first payment made today. The lottery pays $10,000 every month for 100 months (8 years and 4 months). If the proper discount rate is 4%, what is the actual present value of your winning?
Question 9: You are purchasing a new house at $500,000 in Cincinnati.You're making the purchase with an initial deposit of $200,000 and the rest with a 30-year fixed rate mortgage with an interest rate of 3.5% per year with payments made monthly. Excluding all fees, what is your monthly mortgage payment?
Question 10: Every month, your employer deposits $1200 into your 401-K account, with the first payment made 1 month from now. The average rate of return on 401-K account is 12%. How much will you have in your 401-K account after working for 5 years, assuming no additional contribution was made?
Question 11: Ms. Gao is thinking of investing in an annuity that pays her $10,000 in one year, and this payment keeps growing by 1% per year till the last payment that occurs 20 years from today. What is the fair value of this investment if the discount rate is 10%?
A project brings the following cash flow to the company. The company uses its WACC (weighted-average cost of capital) as discount rates at 12%.
|
Years
|
Start CF
|
Growth Rate
|
|
1-3
|
$100,000
|
2%
|
|
4-6
|
$200,000
|
8%
|
|
7- 10
|
$80,000
|
1%
|
Omit "tiny_mce_markerquot; and "," in your answer. Write ONLY numbers. Round to 2 decimal places in all answers submitted.
(1) What is the present value of cash flows from Year 1 to 3?
(2) What is the present value of cash flows from year 4 to 6? (Hint: Discount back to PRESENT, not year 4)
(3) What is the present value of cash flows from year 7 to 10?
(4) What is the PV of this project?