Homework Answers
1. This statement is FALSE.
When solving for present value, the interest rate is commonly referred to as the discount rate because we are discounting the interest earned on the investment in the future period.
When solving for the future value, the interest rate is called the compound rate as interest gets compounded and added to the principal payment / s to arrive at future value.
2. Option (4) is correct
FV = PV * (1 + r)n
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When solving for a present value, the interest rate is commonly referred to as the compound...
2. Future value Aa Aa E The principal of the time value of money is probably...
2. Future value Aa Aa E The principal of the time value of money is probably the single most important concept in financial management. One of the most frequently encountered applications involves the calculation of a future value. The process for converting present values into future values is called . This process requires knowledge of the values of three of four time-value-of-money variables. Which of the following is not one of these variables? T O The interest rate (1) that...
If the process of coming back to present value (PV) from future cash flows is called...
If the process of coming back to present value (PV) from future cash flows is called discounting, then the process of going to future value (FV) from present value (PV) is called compounding. (TRUE/FALSE)?_______________________ For a corporate bond, the quoted interest rate minus the real risk-free rate is equal to which of the following? Nominal interest rate Real inflation rate plus nominal interest rate Market risk premium The sum of inflation premium, default risk premium, liquidity premium and maturity risk premium
An investment adviser has promised to double your money. If the interest rate is 7% a...
An investment adviser has promised to double your money. If the interest rate is 7% a year, how many years will she take to do so? We have entered the data vou need in cells H9 to HI1: Present value (PV) Future value (FV) Interest rate (r) 1 2 0,06 You can use the present value formula to value an annuity You can either find the answer by taking logs of the present value formula or you can use Excel's...
Present value concept Answer each of the following questions. a. What single investment made today, earning...
Present value concept Answer each of the following questions. a. What single investment made today, earning 8% annual interest, will be worth $5,700 at the end of 10 years? b. What is the present value of $5,700 to be received at the end of 10 years if the discount rate is 8%? c. What is the most you would pay today for a promise to repay you $5.700 at the end of 10 years if your opportunity cost is 8%?...
When solving for future value, if a problem presents you with and inflation rate and the...
When solving for future value, if a problem presents you with and inflation rate and the expected rate of return, is it correct to combine the rates such as (inflation 2%, expected return 6%) when solving for FV in excel, using 8% for the rate? I am unclear how inflation affects the rate of return.
Present value concept Answer each of the following questions. a. How much money would you have...
Present value concept Answer each of the following questions. a. How much money would you have to invest today to accumulate $5,500 after 8 years if the rate of return on your investment is 6%? b. What is the present value of $5,500 that you will receive after 8 years if the discount rate is 6%? C. What is the most you would spend today for an investment that will pay $5,500 in 8 years if your opportunity cost is...
Future Value of Account A Note: Account A pays simple interest. Future Value Principal + Interest...
Future Value of Account A Note: Account A pays simple interest. Future Value Principal + Interest Principal + [(Principal x Interest Rate) x Investment Period] $2,000 + [($2,000 x 6%) x 3 years] Future Value of Account X Note: Account X pays compound interest. Future Valuex = Present Value x Interest Rate Factor Present Value x (1 + Interest Rate)N $2,000 (1 + 0.06)3 $ To find the interest rate factor, you can use four different ways, including multiplying it...
Using provided data, solve for present value. When calculating 1/(1+I/Y)^N, round your answer to four decimal...
Using provided data, solve for present value. When calculating
1/(1+I/Y)^N, round your answer to four decimal places. Use your
rounded answer to calculate PV; enter PV rounded to the nearest
dollar. When entering (1+I/Y) into the formula, be sure to solve
for (1+I/Y) and then enter the result rounded to two decimal
places.
Facts FV: $140,000 Annual Interest Rate: 1246 I/Y: ni: (Number of years) N: (Number of compounding periods) Compounded (Y): Monthly Formula Method PV = FV 11 (1+I/Y)...
Assume that the variables 1, N, and PV represent the interest rate, Investment or deposit period,...
Assume that the variables 1, N, and PV represent the interest rate, Investment or deposit period, and present Invested, respectively. Which equation best represents the calculation of a future value (FV) using: Compound interest? O FV = PV / (1 + I)N O FV = (1 + I)N/PV OFV = PV x (1 + 1)N Simple interest? O FV = PV / (PV * I * N) O FV = PV - (PV x 1 x N) O FV =...
losest to: net rate of interest is 8%, then the present value (PV) of this stream...
losest to: net rate of interest is 8%, then the present value (PV) of this stream of cash flows $1677 and 11: You are given two choices of investments, Investment A and Investment B. Both investments have the same future cash flows. Investment A has a discount rate of 4%, and Investment B has a discount rate of 5%. Which of the following is true? O A. The present value of cash flows in Investment A is equal to the...
2. Future value Aa Aa E The principal of the time value of money is probably the single most important concept in financial management. One of the most frequently encountered applications involves the calculation of a future value. The process for converting present values into future values is called . This process requires knowledge of the values of three of four time-value-of-money variables. Which of the following is not one of these variables? T O The interest rate (1) that...
An investment adviser has promised to double your money. If the interest rate is 7% a year, how many years will she take to do so? We have entered the data vou need in cells H9 to HI1: Present value (PV) Future value (FV) Interest rate (r) 1 2 0,06 You can use the present value formula to value an annuity You can either find the answer by taking logs of the present value formula or you can use Excel's...
Present value concept Answer each of the following questions. a. What single investment made today, earning 8% annual interest, will be worth $5,700 at the end of 10 years? b. What is the present value of $5,700 to be received at the end of 10 years if the discount rate is 8%? c. What is the most you would pay today for a promise to repay you $5.700 at the end of 10 years if your opportunity cost is 8%?...
Present value concept Answer each of the following questions. a. How much money would you have to invest today to accumulate $5,500 after 8 years if the rate of return on your investment is 6%? b. What is the present value of $5,500 that you will receive after 8 years if the discount rate is 6%? C. What is the most you would spend today for an investment that will pay $5,500 in 8 years if your opportunity cost is...
Future Value of Account A Note: Account A pays simple interest. Future Value Principal + Interest Principal + [(Principal x Interest Rate) x Investment Period] $2,000 + [($2,000 x 6%) x 3 years] Future Value of Account X Note: Account X pays compound interest. Future Valuex = Present Value x Interest Rate Factor Present Value x (1 + Interest Rate)N $2,000 (1 + 0.06)3 $ To find the interest rate factor, you can use four different ways, including multiplying it...
Using provided data, solve for present value. When calculating
1/(1+I/Y)^N, round your answer to four decimal places. Use your
rounded answer to calculate PV; enter PV rounded to the nearest
dollar. When entering (1+I/Y) into the formula, be sure to solve
for (1+I/Y) and then enter the result rounded to two decimal
places.
Facts FV: $140,000 Annual Interest Rate: 1246 I/Y: ni: (Number of years) N: (Number of compounding periods) Compounded (Y): Monthly Formula Method PV = FV 11 (1+I/Y)...
Assume that the variables 1, N, and PV represent the interest rate, Investment or deposit period, and present Invested, respectively. Which equation best represents the calculation of a future value (FV) using: Compound interest? O FV = PV / (1 + I)N O FV = (1 + I)N/PV OFV = PV x (1 + 1)N Simple interest? O FV = PV / (PV * I * N) O FV = PV - (PV x 1 x N) O FV =...
losest to: net rate of interest is 8%, then the present value (PV) of this stream of cash flows $1677 and 11: You are given two choices of investments, Investment A and Investment B. Both investments have the same future cash flows. Investment A has a discount rate of 4%, and Investment B has a discount rate of 5%. Which of the following is true? O A. The present value of cash flows in Investment A is equal to the...
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