# Finance Time Value

 What is the PV of an annuity due with 5 payments of \$2,500 at an interest rate of 5.5%? \$11,262.88 What’s the present value of a perpetuity that pays \$250 per year if the appropriate interest rate is 5%? \$5,000 What’s the rate of return you would earn if you paid \$950 for a perpetuity that pays \$85 per year? 8.95% What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of \$1,250? PMT \$81.25 What is the present value of the following cash flow stream at a rate of 12.0%?Years: 0 1 2 3 4 | | | | |CFs: \$0 \$1,500 \$3,000 \$4,500 \$6,000 \$10,747 At a rate of 6.5%, what is the future value of the following cash flow stream?Years: 0 1 2 3 4 | | | | |CFs: \$0 \$75 \$225 \$0 \$300 \$645.80 Your father paid \$10,000 (CF at t = 0) for an investment that promises to pay \$750 at the end of each of the next 5 years, then an additional lump sum payment of \$10,000 at the end of the 5th year. What is the expected rate of return on this investment? I/YR 7.50% What’s the future value of \$1,500 after 5 years if the appropriate interest rate is 6%, compounded semiannually? FV = \$2,016 What’s the future value of \$1,200 after 5 years if the appropriate interest rate is 6%, compounded monthly? FV \$1,618.62 What’s the present value of \$1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly? PV = \$1,131 = FV/(1+rPer)^NPV = \$1,131 Master Card and other credit card issuers must by law print the Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 18.00%, with interest paid monthly, what is the card’s EFF%? EFF% =(1+(rNOM/N))^N − 1 = 19.56% Suppose you borrowed \$12,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be? Payments = PMT \$3,704.02 Suppose you borrowed \$14,000 at a rate of 10.0% and must repay it in 5 equal installments at the end of each of the next 5 years. How much interest would you have to pay in the first year? Interest in Year 1 \$1,400.00
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