Question

Question 20

1. What is the present value of $27 received at the end of each year for 5 years?Assume a discount rate of 9%. The first payment will be received one year from today

   	I.	$42
   	II.	$114
   	III.	$88
   	IV.	$105
   	V.	None of the options specified here

Question 16

1. Winner Lei is thinking of buying a miniature golf course. It is expected to generate cash flows of $40,000 per year in years 1, $50,000 per year in year 2 and year 3. If the appropriate discount rate is 10%, what is the present value of these cash flows?

   	I.	$285,288
   	II.	$167,943
   	III.	$235,048
   	IV.	115,251
   	V.	None of the options specified here

question 2

If Victoria wants to have $1700 in seven years, how much money must she put in a savings account today? Assume that the savings account pays 6% and it is compounded quarterly

	I.	$1120
	II.	$1130
	III.	$1140
	IV.	$1150
	V.	None of the options specified here

question 3

If Hamidou invests $7500 today at 8 percent compounded semi-annually, how much would he accumulate at the end of 10 years?

	I.	$16,191.94
	II.	$10,193
	III.	$22,334
	IV.	$16,433.42
	V.	None of the options specified here

Answer 1

a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=27[1-(1.09)^-5]/0.09

=27*3.88965126

=$105(Approx)

b.Present value=Cash flows*Present value of discounting factor(rate%,time period)

=40,000/1.1+50,000/1.1^2+50,000/1.1^3

=$115,251(Approx)

c.We use the formula:
A=P(1+r/4)^4n
where
A=future value
P=present value
r=rate of interest
n=time period.

1700=P*(1+0.06/4)^(4*7)

P=1700/(1+0.06/4)^(4*7)

=1700*0.659099249

=$1120(Approx).

d.We use the formula:
A=P(1+r/2)^2n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=7500*(1+0.08/2)^(2*10)

=7500*2.19112314

=$16433.42(Approx).