Reading 5: The Time Value of Money- LOS d, (Part 1)～ Q6-8

product, produce, promises, investor, investment

Q6. 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.

Q7. Given a 5% discount rate, the present value of $500 to be received three years from today is:

A) $400.

B) $432.

C) $578.

Q8. A local bank offers a certificate of deposit (CD) that earns 5.0% compounded quarterly for three and one half years. If a depositor places $5,000 on deposit, what will be the value of the account at maturity?

A) $5,949.77.

B) $5,931.06.

C) $5,875.00.

[此贴子已经被作者于2008-12-29 17:05:40编辑过]

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发表于 2008-12-29 16:44 | 只看该作者

答案和详解如下：

A) $9,426.

B) $7,829.

C) $7,618.

Correct answer is B)

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

or: 25,458/1.14⁹ = 7,828.54

Q7. Given a 5% discount rate, the present value of $500 to be received three years from today is:

A) $400.

B) $432.

C) $578.

Correct answer is B)

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

or: 500/1.05³ = 431.92.

A) $5,949.77.

B) $5,931.06.

C) $5,875.00.

Correct answer is A)

The value of the account at maturity will be: $5,000 × (1 + 0.05 / 4)^{(3.5 × 4)} = $5.949.77;
or with a financial calculator: N = 3 years × 4 quarters/year + 2 = 14 periods; I = 5% / 4 quarters/year = 1.25; PV = $5,000; PMT = 0; CPT → FV = $5,949.77.