TVM Self Assessment

Name___________________________________

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question.

1) You are considering a project with the following cash flows: 1)

Year 1 Year 2 Year 3

$6,800 $8,400 $10,900

What is the present value of these cash flows, given a 7.75% discount rate?
A) $21,528.91
B) $22,259.15
C) $20,607.02
D) $21,927.83
E) $21,003.13

2) What would your payment be on a 10-year, $150,000 loan at 10% interest compounded 2)
semiannually assuming the payments are made annually?
A) $24,411.81
B) $24,674.60
C) $25,366.63
D) $19,716.67
E) $20,743.77

3) Your parents are giving you $500 a month for five years while you attend college to earn 3)
both a bachelor's and a master's degree. At a 7% discount rate, what are these payments
worth to you when you first enter college?
A) $24,601.18
B) $30,000.00.
C) $22,681.13
D) $27,209.17
E) $25,251.00

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4) Stevenson Interiors of Kingston has a $67,500 liability they must pay four years from 4)
today. The company is opening a savings account so that the entire amount will be
available when this debt needs to be paid. The plan is to make an initial deposit today
and then deposit an additional $10,000 a year for the next four years, starting one year
from today. The account pays a 5% rate of return. How much does the firm need to
deposit today?
A) $20,072.91
B) $24,398.75
C) $18,299.95
D) $21,400.33
E) $1,076.56

5) You just won the lottery. You and your heirs will receive $25,000 per year forever, 5)
beginning one year from now. What is the present value of your winnings at an 8%
discount rate?
A) $287,500 B) $182,500 C) $337,500 D) $200,000 E) $312,500

6) Calculate the present value of a growing annuity given the following information: 6)
current cash flows: $260,000; cash flow growth rate = 6%; timeframe = 65 years;
required rate of return = 14%.
A) $3,321,296
B) $3,221,296
C) $3,521,296
D) $3,621,296
E) $3,421,296

7) What is the future value of $2,500 a year for ten years at a 7% rate of interest? 7)
A) $32,813.87
B) $36,959.00
C) $33,266.67
D) $35,609.03
E) $34,541.12

8) ABC preferred stock pays a $3 annual dividend. The current market rate of return is 8% 8)
for this type of investment. What is one share of ABC preferred stock worth?
A) $37.50 B) $38.50 C) $24.00 D) $30.00 E) $32.50

9) You are expecting annual cash flows of $1,000 in years 1-5; $2,000 in years 6-10; and 9)
$5,000 in years 11-20. If the rate of interest is 8% compounded annually, calculate the
present value of this cash flow stream.
A) $26,968 B) $24,968 C) $27,968 D) $28,968 E) $25,968

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10) Today, you are buying an annuity which will pay you $25,000 a year for 20 years. The 10)
payments are paid annually, starting today. How much are you paying if the interest rate
on the annuity is 5%?
A) $310,628.04
B) $325,900.13
C) $327,133.02
D) $313,045.54
E) $311,555.26

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Answer Key
Testname: UNTITLED1

1) B
2) B
3) E
4) A
5) E
6) B
7) E
8) A
9) B
10) C