ADMS 3530 Lecture Notes - Market Rate, Net Present Value, Interest

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pearimpala756

30 May 2012

School

York University

Department

Administrative Studies

Course

ADMS 3530

Professor

Irvin Pestano

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Document Summary

Process of calculating future values is compounding, while process of calculating present value is discounting. You want to buy a computer , there are two payment options: A dollar today is worth . 25 a year from now ( 1000/800) A dollar in future is worth 800/1000= 80cents. Simple interest: interest is only earned on the investment. Compound interest: interest is reinvested and therefore interest is earned on the interest and the principle. Fv= pv( fvif r, t) fvif future value interest factor. For greater returns, we should invest it at higher interest rate as well as for longer period of time. How long would it take for money to double: n= 72/r. Pv= fv ( pvif r, t) present value interest factor. How much would you pay for a zero coupon bond which matures in 12 years ? you require a return of. The value means the discounted value of all future cash flows.

Related Questions

Time Value of Money Problems

Calculate the present value of the following investment: (a) Future Value: $123,000, (b) Number of Periods: 10, and (c) Interest Rate: 6%.

Calculate the future value of the following investment: (a) Present Value: $12,000, (b) Number of Periods: 13, and (c) Interest Rate: 4%.

Calculate the number of periods for the following investment: (a) Present Value: $30,000, (b) Future Value: $98,328, and (c) Interest Rate: 6%.

Calculate the Interest Rate for the following investment: (a) Present Value: $12,000, (b) Future Value: $25,000, and (c) Number of Periods: 14.

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QUESTION 1 The time value of money refers to the issue of: A. what the value of the stream of future cash flows is today. B. why a dollar received tomorrow is worth more than a dollar received today. C. what the time required to double an amount of money. D. why people prefer to consume things at some time in the future rather than today.

QUESTION 2 The process of converting an amount given at the present time into a future value is called: A. annualizing. B. discounting. C. compounding. D. capital budgeting. 2 points

QUESTION 3 Juan Vinson is planning to buy a house in five years. He is looking to invest $25,000 today in an index mutual fund that will provide him a return of 12 percent annually. How much will he have at the end of five years? (Round to the nearest dollar.) A. $45,000 B. $28,000 C. $44,059 D. $28,530 2 points

QUESTION 4 Which of the following statements is true with respect to the present value of a future amount? A. The higher the discount rate, the higher the present value of a single sum for a given time period. B. The relation between present value and time is exponential. C. The greater the time period, the higher the present value of a single sum for a given interest rate. D. The lower the discount rate, the lower the present value of a single sum for a given time period. 2 points

QUESTION 5 Which of the following statements is true of the rule of 72? A. It can be used to determine the amount of time it takes to double an investment. B. It is fairly accurate for interest rates between 25 and 50 percent. C. It states that the time to double your money (TDM) approximately equals 72/i, where i represents the years it takes to double your investment. D. It can be used to estimate approximate compound interest earned for a period of 72 days. 2 points

QUESTION 6 The present value of future cash flows are computed by multiplying future value with the: A. discounting factor. B. compound factor. C. interest rate. D. number of periods. 2 points

QUESTION 7 The present value of multiple cash flows is: A. greater than the sum of the cash flows. B. equal to the sum of all the cash flows. C. less than the sum of the cash flows. D. higher or lower than the cash flows depending on the interest rate. 2 points

QUESTION 8 Cash flows associated with annuities are considered to be: A. an uneven cash flow stream. B. a constant cash flow stream. C. a mix of constant and uneven cash flow streams. D. a cash flow stream with decreasing trend. 2 points

QUESTION 9 The annuity transformation method is used to transform: A. a present value annuity to a future value annuity. B. a present value annuity to an annuity due. C. an ordinary annuity to an annuity due. D. a perpetuity to an annuity. 2 points

QUESTION 10 The true cost of borrowing is the: A. annual percentage rate. B. effective annual rate. C. quoted interest rate. D. periodic rate.

home / study / questions and answers / business / finance / manually calculate the value of the investment, ... Your question has been answered! Rate it below. Let us know if you got a helpful answer. . Question please give the formula for each question. I didn't understand how you got your answers to these questions. thanks. Manually calculate the value of the investment, show each years calculation. How much would a $1,000 investment be worth at the end of 3 years assuming a rate of 5%., Calculate the future value. Principal invested today-$1,000 at 7% rate in 8 years., Calculate the present value. Principle future value- $10,000 at a rate of 6% for 16 years., Calculate the present value of annuity of receiving $5.00 each year for the next 12 years with interest rate of 7%., Calculate the future value of annuity of investing $6,000 each year starting now for 10 years at 5% interest rate., How much would you pay today to receive $15,000 in 8 years? Assume a 5% interest rate., How much would your CD of $1,000 be worth in 6 years at an interest rate of 4%?, How much would you pay today for an investment in which you would receive $5,000 each year for the next 7 years? Assume an interest rate of 6%., If you save $10,000 per year for the 4 years assuming an interest rate of 7%, how much money would you have?, Suppose you win a small lottery. You can receive $9,000 now or receive $2,100 a year for the next 5 years. Assume 6% interest rate. Which method would be the best choice?, Calculate the effective annual rate of 12% assuming quarterly compounding,

ADMS 3530 Lecture Notes - Market Rate, Net Present Value, Interest

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