NPV AND THE TIME VALUE OF MONEY
1. An annuity pays $10 per year for 50 years. What is the future value (FV) of this annuity at the end of that 50 years given that the discount rate is 5%? (Points : 6)
2. You are considering purchasing a new home. You will need to borrow $250,000 to purchase the home. A mortgage company offers you a 15-year fixed rate mortgage (180 months) at 9% APR (0.75% month). If you borrow the money from this mortgage company, your monthly mortgage payment will be closest to: (Points : 6)
3. What is the present value (PV) of an investment that will pay $400 in one year’s time, and $400 every year after that, when the interest rate is 5%? (Points : 5)
4. What is the present value (PV) of $50,000 received 20 years from now, assuming the interest rate is 4% per year? (Points : 5)
5. An annuity is set up that will pay $1500 per year for ten years. What is the present value (PV) of this annuity given that the discount rate is 6%? (Points : 5)
6. In order to distinguish between inflows and outflows, different colors are assigned to each of these cash flows when constructing a timeline. (Points : 6)
7. What is the present value (PV) of $80,000 received ten years from now, assuming the interest rate is 5% per year? (Points : 5)
8. A homeowner in a sunny climate has the opportunity to install a solar water heater in his home for a cost of $2400. After installation the solar water heater will produce a small amount of hot water every day, forever, and will require no maintenance. How much must the homeowner save on water heating costs every year if this is to be a sound investment? (The interest rate is 9% per year.) (Points : 6)
9. You are considering investing in a zero-coupon bond that will pay you its face value of $1000 in ten years. If the bond is currently selling for $485.20, then the internal rate of return (IRR) for investing in this bond is closest to: (Points : 6)
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