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Exam 13: Time Value of Money

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Question 21

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Sandra won $5,000,000 in the state lottery,which she has elected to receive at the end of each month over the next thirty years.She will receive 7% interest on unpaid amounts.To determine the amount of her monthly check,she should use a table for the:

A) Future value of $1.
B) Present value of $1.
C) Future value of an annuity of $1.
D) Present value of an annuity of $1.

E) All of the above
F) A) and C)

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Question 22

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Present value indicates how much a present amount of money will grow to in the future.

A) True
B) False

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Question 23

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Price Mart is considering outsourcing its billing operations.A consultant estimates that outsourcing should result in after-tax cash savings of $9,000 the first year,$15,000 for the next two years,and $18,000 for the next two years.Assuming a 12% discount rate,calculate the total present value of the cash flows.

Zulu Corporation hires a new chief executive officer and promises to pay her a signing bonus of $2 million per year for 10 years,starting at the end of the first year.The value of this signing bonus is:

At the end of each quarter,Patti deposits $500 into an account that pays 12% interest compounded quarterly.How much will Patti have in the account in three years?

Two banks each have stated CD rates of 12%.Bank A compounds quarterly and Bank B compounds semiannually.Explain which bank offers the better CD.

How much will $1,000 invested at the end of each year grow to in 20 years,assuming an interest rate of 10% compounded annually?

Briefly explain why the value of $100 received today is greater than the value of $100 received one year from now.

The concept that interest causes the value of money received today to be greater than the value of that same amount of money received in the future is referred to as the:

Compute the future value of the following invested amounts at the specified periods and interest rates.

The time value of money is a concept,which means that the value of $1 increases over time.

How much will $25,000 grow to in seven years,assuming an interest rate of 12% compounded annually?

How much will $8,000 grow to in five years,assuming an interest rate of 8% compounded quarterly?

Quaker State Inc.offers a new employee a lump-sum signing bonus at the date of employment.Alternatively,the employee can take $8,000 at the date of employment plus $20,000 at the end of each of his first three years of service.Assuming the employee's time value of money is 10% annually,what lump-sum at employment date would make him indifferent between the two options?

What is the value today of receiving $3,000 at the end of each year for the next three years,assuming an interest rate of 3% compounded annually?

A series of equal periodic payments is referred to as:

Below are excerpts from interest tables for 8% interest. Column 1 is an interest table for the:

Monica wants to sell her share of an investment to Barney for $50,000 in three years.If money is worth 6% compounded semiannually,what would Monica accept today?

Which three factors are necessary in calculating the present value of a single amount?

Explain the difference between present value and future value.