6.3 Complex Cash Flow Streams
1) What is the value on 1/1/14 of the following cash lows? Use a 10% discount rate, and
round your answer to the nearest $1.00.
Date Cash Received Amount of Cash
1/1/16 $100
1/1/17 $200
1/1/18 $300
1/1/19 $400
1/1/20 $500
A) $1,500
B) $880
C) $968
D) $1,065
Question Status: Revised
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
2) Consider the following cash lows:
Date Cash ReceivedAmount of Cash
1/1/15 $100
1/1/16 $100
1/1/17 $500
1/1/18 $100
What is the value on 1/1/14 of the above cash lows? Use an 8% discount rate, and round
your answer to the nearest $1.00.
A) $649
B) $601
C) $740
D) $800
Question Status: Revised
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
31
3) If you put $200 in a savings account at the beginning of each year for 10 years and then
allow the account to compound for an additional 10 years, how much will be in the account
at the end of the 20th year? Assume that the account earns 10%, and round to the nearest
$10.
A) $8,300
B) $9,100
C) $8,900
D) $9,700
Question Status: Previous edition
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
4) An investment is expected to yield $300 in three years, $500 in ive years, and $300 in
seven years. What is the present value of this investment if our opportunity rate is 5%?
A) $735
B) $865
C) $885
D) $900
Question Status: Previous edition
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
5) Jay Coleman just graduated. He plans to work for ive years and then leave for the
Australian “Outback” country. He igures that he can save $3,500 a year for the irst three
years and $5,000 a year for the next two years. These savings will start one year from now.
In addition, his family gave him a $2,500 graduation gift. If he puts the gift, and the future
savings when they start, into an account that pays 7.75% compounded annually, what will
his inancial “stake” be when he leaves for Australia ive years from now? Round of to the
nearest $1.
A) $36,082
B) $24,725
C) $30,003
D) $27,178
Question Status: Previous edition
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
32
6) You are thinking of buying a miniature golf course. It is expected to generate cash lows
of $40,000 per year in years one through four and $50,000 per year in years ive through
eight. If the appropriate discount rate is 10%, what is the present value of these cash
lows?
A) $285,288
B) $167,943
C) $235,048
D) $828,230
Question Status: Previous edition
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
7) You have been depositing money at the end of each year into an account drawing 8%
interest. What is the balance in the account at the end of year four if you deposited the
following amounts?
Year End of Year Deposit
1 $350
2 $500
3 $725
4 $400
A) $1,622
B) $2,207
C) $2,384
D) $2,687
Question Status: Previous edition
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
33
8) You want to travel to Europe to visit relatives when you graduate from college three
years from now. The trip is expected to cost a total of $10,000. Your parents have deposited
$5,000 for you in a CD paying 6% interest annually, maturing three years from now. Aunt
Hilda has agreed to inance the balance. If you are going to put Aunt Hilda’s gift in an
investment earning 10% annually over the next three years, how much must she deposit
now so you can visit your relatives in three years?
A) $3,757
B) $3,039
C) $3,801
D) $3,345
Question Status: Previous edition
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
9) What is the present value of the following uneven stream of cash lows? Assume a 6%
discount rate and end-of-period payments. Round to the nearest whole dollar.
Year Cash Flow
1 $3,000
2 $4,000
3 $5,000
A) $10,588
B) $11,461
C) $12,688
D) $13,591
Question Status: Previous edition
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
34
10) As a part of your savings plan at work, you have been depositing $250 per quarter in a
savings account earning 8% interest compounded quarterly for the last 10 years. You will
retire in 15 years and want to increase your contribution each year from $1,000 to $2,000
per year, by increasing your contribution every four months from $250 to $500.
Additionally, you have just inherited $10,000, which you plan to invest now to earn interest
at 12% compounded annually for the next 15 years. How much money will you have in
savings when you retire 15 years from now?
A) $126,862
B) $73,012
C) $161,307
D) $194,415
Question Status: Previous edition
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
11) Ronald Slump purchased a real estate investment with the following end-of-year cash
lows:
Year EOY Cash Flow
1 $200
2 $-350
3 $-430
4 $950
What is the present value of these cash lows if the appropriate discount rate is 20%?
A) $178
B) $160
C) $133
D) $767
Question Status: Previous edition
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
35
12) You have just won a magazine sweepstakes and have a choice of three alternatives. You
can get $100,000 now, or $10,000 per year in perpetuity, or $50,000 now and $150,000 at
the end of 10 years. If the appropriate discount rate is 12%, which option should you
choose?
A) $100,000 now
B) $10,000 perpetuity
C) $50,000 now and $150,000 in 10 years
Question Status: Previous edition
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
13) Your parents are planning to retire in Phoenix, AZ in 20 years. Currently, the typical
house that pleases your parents costs $200,000, but they expect inlation to increase the
price of the house at a rate of 4% over the next 20 years. To buy a house upon retirement,
what must they save each year in equal annual end-of-year deposits if they can earn 10%
annually?
A) $21,910.00
B) $7,650.94
C) $10,000.00
D) $14,715.52
Question Status: Previous edition
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
14) You intend to purchase a new car upon graduation in two years. It will have a cost of
$29,371, including all extra features and sales tax. You just received a $3,000 pre-
graduation gift from your rich uncle that you intend to deposit in a money market account
that pays 6% interest, compounded monthly. If you use the amount in the money market
account for a down payment, and take out an auto loan for the remainder, how much will
you need to borrow? (Round to the nearest dollar.)
A) $29,371
B) $25,880
C) $26,371
D) $26,000
Question Status: New question
Objective: 6.3 Calculate the present and future values of complex cash low streams.
Keywords: complex income streams
Principles: Principle 1: Money Has a Time Value
36