Contemporary Financial Management
14th Edition
ISBN: 9781337090582
Author: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
Publisher: Cengage Learning
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Chapter 5, Problem 2QTD
Summary Introduction
To discuss: Whether
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Calculate the future value if present value (PV) = $1,020, interest rate (r) = 11.9% and number of years (t) = 15
McCann Company has identified an investment project with the following cash flows.
Year
Cash Flow
1
$ 800
23
1,020
4
1,220
1,130
a. If the discount rate is 8 percent, what is the present value of these cash flows?
Present value at 8 percent
b. What is the present value at 17 percent?
Present value at 17 percent
What is the present value for a future value of FV=$500,000 at time t=36 if the interest rate is r=0.05 (e.g., r=5%)?
What is the interest rate “r” if PV=$100 and the FV=$350 in year t=12?
What is the interest rate “r” if PV=$1250 and the FV=$2150 in year t=10?
How long will it take to double your investment if the interest rate is r=0.06 (r=6%)?
How long will it take to increase your investment by 2.5 times if the interest rate is r=0.14 (r=14%)?
Which is the better option if the interest rate is r=0.10 (r=10%)? Show all work used to arrive at your answer.
a. Option I: Receive $1000 today at time t=0.
b. Option II: Receive $1615 at time t=5.10)
Which is the better option if the interest rate is r=0.07 (r=7%)? Show all work used to arrive at your answer.
a. Option I: Receive $510 today at time t=0.
b. Option II: Receive $1000 at time t=10.
Chapter 5 Solutions
Contemporary Financial Management
Ch. 5.A - Prob. 1PCh. 5.A - Prob. 2PCh. 5.A - Prob. 3PCh. 5.A - Prob. 4PCh. 5.A - Prob. 5PCh. 5.A - Prob. 6PCh. 5 - Prob. 1QTDCh. 5 - Prob. 2QTDCh. 5 - Prob. 3QTDCh. 5 - Prob. 4QTD
Ch. 5 - Prob. 5QTDCh. 5 - Prob. 6QTDCh. 5 - Prob. 7QTDCh. 5 - Prob. 8QTDCh. 5 - Prob. 9QTDCh. 5 - Prob. 10QTDCh. 5 - Prob. 11QTDCh. 5 - Prob. 12QTDCh. 5 - Prob. 13QTDCh. 5 - Prob. 14QTDCh. 5 - Prob. 15QTDCh. 5 - Prob. 16QTDCh. 5 - Prob. 17QTDCh. 5 - Prob. 18QTDCh. 5 - Prob. 19QTDCh. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - Prob. 5PCh. 5 - Prob. 6PCh. 5 - Prob. 7PCh. 5 - Prob. 8PCh. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - Prob. 11PCh. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - Prob. 16PCh. 5 - Prob. 17PCh. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Prob. 32PCh. 5 - Prob. 33PCh. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Prob. 37PCh. 5 - Prob. 38PCh. 5 - Prob. 39PCh. 5 - Prob. 40PCh. 5 - Prob. 41PCh. 5 - Prob. 42PCh. 5 - Prob. 43PCh. 5 - Prob. 44PCh. 5 - Prob. 45P
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- 1. This problem relates to Future Value, and Future income streams. Assume continuous compounding of interest. (a) Find the present value of a single future payment of FV = $50,000 to be made 20 years from now, assuming an interest rate of 5 percent. (b) Suppose you want a future income stream (annual payments) of FV (t) = 500t for 20 years. Find the present value of this income stream, assuming an interest rate of 5 percent.arrow_forwardWhat is the present value of payments that are: year 0: 5000, year1: 10000, year2: 12500, year3: 15000? Discount factor 11%.arrow_forwardWhat is the interest rate “r” if PV=$100 and the FV=$350 in year t=12?arrow_forward
- An annuity, and an annuity due, with the same number of payments have the same future value if r = 10%. Which one has the higher payment?arrow_forwardAccording to the concepts underlying the present-value formula, would you prefer to receive (a) P75 one year from now, (b) P85 two years from now, or (c) P90 three years from now, if the relevant market interest rate is 10% and will remain at 10% for the next three years? a. The present values of all three choices are identical b. P75 one year from now c. P85 two years from now d. P90 three years from nowarrow_forward8. If the concern is for the value that existing money will have next year, the formula for the intertemporal value of money can be expressed as follows: Next Year's Value = Present Value (1 + r). For example, if the interest rate is 10% and the present value is $100, the $100 will increase to $110 at the end of a year. a. Using this algebraic expression, show the formula for the present value of future income and calculate what $200 received next year is worth now. b. What is the present value of $100 received 2 years from now?arrow_forward
- How did they compute the 20% Future Value?arrow_forward2. Find the future value of OMR10,000 invested now after five years if the annual interest rate is 8 percent. a. What would be the future value if the interest rate is a simple interest rate? b. What would be the future value if the interest rate is a compound interest rate?arrow_forwardThe yield curve indicates that the two-year interest rate will be a function of what variables? Include in your answer an explanation of how changes in these variables will affect the two-year interest rate.arrow_forward
- If PV=$100, i=2%, n=5 years, and the investment compounds annually, what is the equation for Future Value?arrow_forwardYou are comparing two annuities. Annuity A pays $115 at the end of each year for 5 years. Annuity B pays $105 at the beginning of each year for 5 years. The rate of return on both annuities is 12 percent. Which one of the following statements is correct given this information? Annuity B has both a higher present value and a higher future value than Annuity A. O Annuity A has both a higher present value and a higher future value than Annuity B. O Annuity A has the same present value and future value as Annuity B.arrow_forwardAn investment will pay $100 at the end of each of the next 3 years, $200 at the end of year 4, $300 at the end of Year 5, and $500 at the end of Year 6. If other investments of equal risk earn 8 percent annually, what is its present value? Its future value?arrow_forward
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