What is the present value

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Question 1. What is the present value (PV) of $100,000 received five years from now, assuming the interest rate is 8% per year?

a. $600,000.00 b. $68,058.32 c. $73,502.99 d. $82,609.42

Question 2. Erin places $200 in a savings account that pays 7% interest, compounded monthly. How much will she have in the account in three years?

a. $236.00 b. $238.20 c. $245.00 d. $246.59

Question 3. Your grandmother bought a house 40 years ago for $20,000. Today she sold the house for $92,000. What was your grandmother's rate of return (annual) on this investment?

a. 3.89% b. 4.54% c. 4.67% d. 10.16%

Question 4. Kenneth has $10,000 he is placing in a savings account that pays 6% interest, compounded annually. If Kenneth makes no additional deposits and no withdrawals, how long would it take to grow the account to $25,000?

a. 11.13 years b. 13.5 years c. 14.27 years d. 15.73 years

Question 5. Sam just took out a $15,000, four-year loan to buy a new car. If the interest rate on the loan is 8% APR compounded monthly, what will Sam's monthly car payments be?

a. $366.19 b. $4528.81 c. $377.40 d. $1230.60

Question 6. Rachel is due to receive two payments from an insurance company. She will get $1,000 exactly one year from today, and $2,000 two years from today. Instead of the two payments, the insurance company is willing to settle the account by making one lump-sum payment to Rachel today. The insurance company applies a 6% discount rate for the one year cash flow and a 8% discount rate for the two-year cash flow. What dollar amount will Rachel receive today?

a. $2,712 b. $2,750 c. $2,675 d. $2,658 e. $3,000

Question 7. As the discount rate increases without limit, the present value of a future cash flow

a.approaches infinity b.remains unchanged c.approaches zero d.approaches negative infinity

Question 8. A perpetuity will pay $1,000 per year, starting 5 years after the perpetuity is purchased. What is the present value of this perpetuity on the date that it is purchased, given that the interest rate is 4%?

a. $1,410 b. $20,582 c. $21,370 d. $34,604

Question 9. Your friend Barbara has a bond that she would like to sell to you. The bond matures in 10 years, has a face value of $1,000 and a coupon interest rate of 6% (paid annually). If you know that the yield to maturity on similar bonds is 8%, what is the maximum price you would be willing to pay for the bond?

a. $865.80 b. $940 c. $1000 d. $1,147.20

Question 10. A coupon bond which pays interest of $60 annually, has a par value of $1,000, matures in 5 years, and is selling today for $915.48. The yield to maturity on this bond is approximately __________.

a. 6% b. 7% c. 8% d. 9%

Reference no: EM132784962

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