mouse123

What is the total present value of $200 to be received one year from now, $300 to be received 3 years from now, and $600 to be received 5 years from now assuming an interest rate of 5%?

A) $980.89.

B) $905.87.

C) $919.74.

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200 / (1.05) + 300 / (1.05)3 + 600 / (1.05)5 = 919.74.

mouse123

What is the maximum an investor should be willing to pay for an annuity that will pay out $10,000 at the beginning of each of the next 10 years, given the investor wants to earn 12.5%, compounded annually?

A) $62,285.

B) $52,285.

C) $55,364.

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Using END mode, the PV of this annuity due is $10,000 plus the present value of a 9-year ordinary annuity: N=9; I/Y=12.5; PMT=-10,000; FV=0; CPT PV=$52,285; $52,285 + $10,000 = $62,285.
Or set your calculator to BGN mode then N=10; I/Y=12.5; PMT=-10,000; FV=0; CPT PV= $62,285.

mouse123

Find the future value of the following uneven cash flow stream. Assume end of the year payments. The discount rate is 12%.

Year 1	-2,000
Year 2	-3,000
Year 3	6,000
Year 4	25,000
Year 5	30,000

A) $58,164.58.

B) $65,144.33.

C) $33,004.15.

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N = 4; I/Y = 12; PMT = 0; PV = -2,000; CPT → FV = -3,147.04
N = 3; I/Y = 12; PMT = 0; PV = -3,000; CPT → FV = -4,214.78
N = 2; I/Y = 12; PMT = 0; PV = 6,000; CPT → FV = 7,526.40
N = 1; I/Y = 12; PMT = 0; PV = 25,000; CPT → FV = 28,000.00
N = 0; I/Y = 12; PMT = 0; PV = 30,000; CPT → FV = 30,000.00
Sum the cash flows: $58,164.58.
Alternative calculation solution: -2,000 × 1.124 − 3,000 × 1.123 + 6,000 × 1.122 + 25,000 × 1.12 + 30,000 = $58,164.58.

mouse123

An investor deposits $10,000 in a bank account paying 5% interest compounded annually. Rounded to the nearest dollar, in 5 years the investor will have:

A) $12,763.

B) $12,500.

C) $10,210.

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PV = 10,000; I/Y = 5; N = 5; CPT → FV = 12,763.
or: 10,000(1.05)5 = 12,763.

mouse123

If a person needs $20,000 in 5 years from now and interest rates are currently 6% how much do they need to invest today if interest is compounded annually?

A) $14,945.

B) $14,683.

C) $15,301.

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PV = FV / (1 + r)n = 20,000 / (1.06)5 = 20,000 / 1.33823 = $14,945
N = 5; I/Y = 6%; PMT = 0; FV = $20,000; CPT → PV = -$14,945.16

mouse123

What will $10,000 become in 5 years if the annual interest rate is 8%, compounded monthly?

A) $14,693.28.

B) $14,802.44.

C) $14,898.46.

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FV(t=5) = $10,000 × (1 + 0.08 / 12)60 = $14,898.46
N = 60 (12 × 5); PV = -$10,000; I/Y = 0.66667 (8% / 12months); CPT → FV = $14,898.46

mouse123

If $10,000 is invested in a mutual fund that returns 12% per year, after 30 years the investment will be worth:

A) $10,120.

B) $299,599.

C) $300,000.

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FV = 10,000(1.12)30 = 299,599
Using TI BAII Plus: N = 30; I/Y = 12; PV = -10,000; CPT → FV = 299,599.

mouse123

A $500 investment offers a 7.5% annual rate of return. How much will it be worth in four years?

A) $892.

B) $668.

C) $650.

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N = 4; I/Y = 7.5; PV = –500; PMT = 0; CPT → FV = 667.73.
or: 500(1.075)4 = 667.73

mouse123

A certain investment product promises to pay $25,458 at the end of 9 years. If an investor feels this investment should produce a rate of return of 14%, compounded annually, what’s the most he should be willing to pay for it?

A) $9,426.

B) $7,829.

C) $7,618.

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N = 9; I/Y = 14; FV = -25,458; PMT = 0; CPT → PV = $7,828.54.
or: 25,458/1.149 = 7,828.54

mouse123

Given a 5% discount rate, the present value of $500 to be received three years from today is:

A) $400.

B) $578.

C) $432.

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N = 3; I/Y = 5; FV = 500; PMT = 0; CPT → PV = 431.92.
or: 500/1.053 = 431.92.