CHAPTER 05—TIME VALUE OF MONEY
d.
$21,264
e.
$22,327
a
N
I/YR
EASY
5-7 Future Value of an Ordinary Annuity
FOFM.BRIG.16.05.07 – Future Value of an Ordinary Annuity
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.04 – Time value of money
Bloom’s: Application
94. You want to quit your job and go back to school for a law degree 4 years from now, and you plan to save $3,500 per
year, beginning immediately. You will make 4 deposits in an account that pays 5.7% interest. Under these assumptions,
how much will you have 4 years from today?
a.
$16,112
b.
$16,918
c.
$17,763
d.
$18,652
e.
$19,584
BEGIN Mode
N
I/YR
Alternative setup:
95. You want to quit your job and return to school for an MBA degree 3 years from now, and you plan to save $7,000 per
year, beginning immediately. You will make 3 deposits in an account that pays 5.2% interest. Under these assumptions,
CHAPTER 05—TIME VALUE OF MONEY
how much will you have 3 years from today?
a.
$20,993
b.
$22,098
c.
$23,261
d.
$24,424
e.
$25,645
c
N
I/YR
EASY
96. What is the PV of an ordinary annuity with 10 payments of $2,700 if the appropriate interest rate is 5.5%?
a.
$16,576
b.
$17,449
c.
$18,367
d.
$19,334
e.
$20,352
e
N
I/YR
EASY
CHAPTER 05—TIME VALUE OF MONEY
97. What is the PV of an ordinary annuity with 5 payments of $4,700 if the appropriate interest rate is 4.5%?
a.
$16,806
b.
$17,690
c.
$18,621
d.
$19,601
e.
$20,633
e
N
I/YR
EASY
98. You have a chance to buy an annuity that pays $2,500 at the end of each year for 3 years. You could earn 5.5% on
your money in other investments with equal risk. What is the most you should pay for the annuity?
a.
$5,493.71
b.
$5,782.85
c.
$6,087.21
d.
$6,407.59
e.
$6,744.83
e
N
I/YR
EASY
99. You just inherited some money, and a broker offers to sell you an annuity that pays $5,000 at the end of each year for
20 years. You could earn 5% on your money in other investments with equal risk. What is the most you should pay for the
CHAPTER 05—TIME VALUE OF MONEY
annuity?
a.
$50,753
b.
$53,424
c.
$56,236
d.
$59,195
e.
$62,311
e
N
I/YR
EASY
100. Your aunt is about to retire, and she wants to sell some of her stock and buy an annuity that will provide her with
income of $50,000 per year for 30 years, beginning a year from today. The going rate on such annuities is 7.25%. How
much would it cost her to buy such an annuity today?
a.
$574,924
b.
$605,183
c.
$635,442
d.
$667,214
e.
$700,575
N
I/YR
EASY
101. What is the PV of an annuity due with 5 payments of $2,500 at an interest rate of 5.5%?
a.
$11,262.88
CHAPTER 05—TIME VALUE OF MONEY
b.
$11,826.02
c.
$12,417.32
d.
$13,038.19
e.
$13,690.10
a
N
I/YR
EASY
102. What’s the present value of a perpetuity that pays $250 per year if the appropriate interest rate is 5%?
a.
$4,750
b.
$5,000
c.
$5,250
d.
$5,513
e.
$5,788
I/YR
EASY
5-11 Perpetuities
103. What’s the rate of return you would earn if you paid $950 for a perpetuity that pays $85 per year?
a.
8.95%
b.
9.39%
c.
9.86%
d.
10.36%
e.
10.88%
CHAPTER 05—TIME VALUE OF MONEY
a
I/YR
EASY
5-11 Perpetuities
104. You have a chance to buy an annuity that pays $550 at the beginning of each year for 3 years. You could earn 5.5%
on your money in other investments with equal risk. What is the most you should pay for the annuity?
a.
$1,412.84
b.
$1,487.20
c.
$1,565.48
d.
$1,643.75
e.
$1,725.94
c
N
I/YR
MODERATE
105. You have a chance to buy an annuity that pays $5,000 at the beginning of each year for 5 years. You could earn 4.5%
on your money in other investments with equal risk. What is the most you should pay for the annuity?
a.
$20,701
b.
$21,791
c.
$22,938
d.
$24,085
e.
$25,289
c
CHAPTER 05—TIME VALUE OF MONEY
106. Your uncle is about to retire, and he wants to buy an annuity that will provide him with $75,000 of income a year for
20 years, with the first payment coming immediately. The going rate on such annuities is 5.25%. How much would it cost
him to buy the annuity today?
a.
$ 825,835
b.
$ 869,300
c.
$ 915,052
d.
$ 963,213
e.
$1,011,374
BEGIN Mode
N
I/YR
MODERATE
5-9 Present Value of an Ordinary Annuity
FOFM.BRIG.16.05.09 – Present Value of an Ordinary Annuity
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.04 – Time value of money
Bloom’s: Application
107. Your father is about to retire, and he wants to buy an annuity that will provide him with $85,000 of income a year for
25 years, with the first payment coming immediately. The going rate on such annuities is 5.15%. How much would it cost
him to buy the annuity today?
a.
$1,063,968
b.
$1,119,966
c.
$1,178,912
d.
$1,240,960
e.
$1,303,008
N
I/YR
MODERATE
5-9 Present Value of an Ordinary Annuity
FOFM.BRIG.16.05.09 – Present Value of an Ordinary Annuity
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.04 – Time value of money
Bloom’s: Application
CHAPTER 05—TIME VALUE OF MONEY
BEGIN Mode
N
I/YR
MODERATE
5-9 Present Value of an Ordinary Annuity
FOFM.BRIG.16.05.09 – Present Value of an Ordinary Annuity
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.04 – Time value of money
Bloom’s: Application
108. You inherited an oil well that will pay you $25,000 per year for 25 years, with the first payment being made today. If
you think a fair return on the well is 7.5%, how much should you ask for it if you decide to sell it?
a.
$284,595
b.
$299,574
c.
$314,553
d.
$330,281
e.
$346,795
BEGIN Mode
N
I/YR
MODERATE
5-9 Present Value of an Ordinary Annuity
FOFM.BRIG.16.05.09 – Present Value of an Ordinary Annuity
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.04 – Time value of money
Bloom’s: Application
109. Sam was injured in an accident, and the insurance company has offered him the choice of $25,000 per year for 15
years, with the first payment being made today, or a lump sum. If a fair return is 7.5%, how large must the lump sum be to
leave him as well off financially as with the annuity?
a.
$225,367
b.
$237,229
c.
$249,090
d.
$261,545
CHAPTER 05—TIME VALUE OF MONEY
e.
$274,622
BEGIN Mode
N
I/YR
MODERATE
5-9 Present Value of an Ordinary Annuity
FOFM.BRIG.16.05.09 – Present Value of an Ordinary Annuity
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.04 – Time value of money
Bloom’s: Application
110. What’s the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $3,000 at the end of Year
4 if the interest rate is 5%?
a.
$ 8,509
b.
$ 8,957
c.
$ 9,428
d.
$ 9,924
e.
$10,446
N
I/YR
Alternative setup:
111. Suppose you inherited $275,000 and invested it at 8.25% per year. How much could you withdraw at the end of each
CHAPTER 05—TIME VALUE OF MONEY
of the next 20 years?
a.
$28,532
b.
$29,959
c.
$31,457
d.
$33,030
e.
$34,681
a
N
I/YR
MODERATE
5-10 Finding Annuity Payments, Periods, and Interest Rates
FOFM.BRIG.16.05.10 – Finding Annuity Payments, Periods, and Interest Rates
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.04 – Time value of money
Ord. annuity payments
Bloom’s: Application
112. Your uncle has $375,000 and wants to retire. He expects to live for another 25 years and to earn 7.5% on his invested
funds. How much could he withdraw at the end of each of the next 25 years and end up with zero in the account?
a.
$28,843.38
b.
$30,361.46
c.
$31,959.43
d.
$33,641.50
e.
$35,323.58
N
I/YR
MODERATE
5-10 Finding Annuity Payments, Periods, and Interest Rates
FOFM.BRIG.16.05.10 – Finding Annuity Payments, Periods, and Interest Rates
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.04 – Time value of money
Ord. annuity payments
Bloom’s: Application
113. Your uncle has $375,000 and wants to retire. He expects to live for another 25 years, and he also expects to earn
7.5% on his invested funds. How much could he withdraw at the beginning of each of the next 25 years and end up with
zero in the account?
CHAPTER 05—TIME VALUE OF MONEY
a.
$28,243.21
b.
$29,729.70
c.
$31,294.42
d.
$32,859.14
e.
$34,502.10
c
N
I/YR
MODERATE
5-10 Finding Annuity Payments, Periods, and Interest Rates
114. Your grandmother just died and left you $100,000 in a trust fund that pays 6.5% interest. You must spend the money
on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much
could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account?
a.
$24,736
b.
$26,038
c.
$27,409
d.
$28,779
e.
$30,218
c
N
I/YR
MODERATE
5-10 Finding Annuity Payments, Periods, and Interest Rates
115. Suppose you inherited $275,000 and invested it at 8.25% per year. How much could you withdraw at the beginning
CHAPTER 05—TIME VALUE OF MONEY
of each of the next 20 years?
a.
$22,598.63
b.
$23,788.03
c.
$25,040.03
d.
$26,357.92
e.
$27,675.82
N
I/YR
MODERATE
5-10 Finding Annuity Payments, Periods, and Interest Rates
116. Your father’s employer was just acquired, and he was given a severance payment of $375,000, which he invested at a
7.5% annual rate. He now plans to retire, and he wants to withdraw $35,000 at the end of each year, starting at the end of
this year. How many years will it take to exhaust his funds, i.e., run the account down to zero?
a.
22.50
b.
23.63
c.
24.81
d.
26.05
e.
27.35
a
I/YR
N
MODERATE
5-10 Finding Annuity Payments, Periods, and Interest Rates
117. Your uncle has $300,000 invested at 7.5%, and he now wants to retire. He wants to withdraw $35,000 at the end of
CHAPTER 05—TIME VALUE OF MONEY
each year, starting at the end of this year. He also wants to have $25,000 left to give you when he ceases to withdraw
funds from the account. For how many years can he make the $35,000 withdrawals and still have $25,000 left in the end?
a.
14.21
b.
14.96
c.
15.71
d.
16.49
e.
17.32
I/YR
N
MODERATE
5-10 Finding Annuity Payments, Periods, and Interest Rates
FOFM.BRIG.16.05.10 – Finding Annuity Payments, Periods, and Interest Rates
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.04 – Time value of money
Finding annuity periods
Bloom’s: Application
118. Your Aunt Ruth has $500,000 invested at 6.5%, and she plans to retire. She wants to withdraw $40,000 at the
beginning of each year, starting immediately. How many years will it take to exhaust her funds, i.e., run the account down
to zero?
a.
18.62
b.
19.60
c.
20.63
d.
21.71
e.
22.86
e
BEGIN Mode
I/YR
N
MODERATE
5-10 Finding Annuity Payments, Periods, and Interest Rates
FOFM.BRIG.16.05.10 – Finding Annuity Payments, Periods, and Interest Rates
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.04 – Time value of money
Finding annuity due periods
Bloom’s: Application
CHAPTER 05—TIME VALUE OF MONEY
119. Your aunt has $500,000 invested at 5.5%, and she now wants to retire. She wants to withdraw $45,000 at the
beginning of each year, beginning immediately. She also wants to have $50,000 left to give you when she ceases to
withdraw funds from the account. For how many years can she make the $45,000 withdrawals and still have $50,000 left
in the end?
a.
15.54
b.
16.36
c.
17.22
d.
18.08
e.
18.99
c
I/YR
N
MODERATE
FFMC.BRIG.15.05.10
120. Suppose you just won the state lottery, and you have a choice between receiving $2,550,000 today or a 20-year
annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity?
Disregard taxes.
a.
7.12%
b.
7.49%
c.
7.87%
d.
8.26%
e.
8.67%
N
I/YR
MODERATE
5-10 Finding Annuity Payments, Periods, and Interest Rates
CHAPTER 05—TIME VALUE OF MONEY
121. Your girlfriend just won the Florida lottery. She has the choice of $15,000,000 today or a 20-year annuity of
$1,050,000, with the first payment coming one year from today. What rate of return is built into the annuity?
a.
3.44%
b.
3.79%
c.
4.17%
d.
4.58%
e.
5.04%
a
N
I/YR
MODERATE
5-10 Finding Annuity Payments, Periods, and Interest Rates
122. Assume that you own an annuity that will pay you $15,000 per year for 12 years, with the first payment being made
today. You need money today to start a new business, and your uncle offers to give you $120,000 for the annuity. If you
sell it, what rate of return would your uncle earn on his investment?
a.
6.85%
b.
7.21%
c.
7.59%
d.
7.99%
e.
8.41%
e
N
I/YR
MODERATE
5-10 Finding Annuity Payments, Periods, and Interest Rates
CHAPTER 05—TIME VALUE OF MONEY
123. What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of
$1,250?
a.
$77.19
b.
$81.25
c.
$85.31
d.
$89.58
e.
$94.06
I/YR
MODERATE
5-11 Perpetuities
124. What is the present value of the following cash flow stream at a rate of 6.25%?
a.
$411.57
b.
$433.23
c.
$456.03
d.
$480.03
e.
$505.30
e
CFs:
MODERATE
5-12 Uneven Cash Flows
CHAPTER 05—TIME VALUE OF MONEY
125. What is the present value of the following cash flow stream at a rate of 12.0%?
a.
$ 9,699
b.
$10,210
c.
$10,747
d.
$11,284
e.
$11,849
c
CFs:
Found using the Excel NPV function.
Found by summing individual PVs.
Found using the calculator NPV key.
MODERATE
5-12 Uneven Cash Flows
FOFM.BRIG.16.05.12 – Uneven Cash Flows
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.04 – Time value of money
Bloom’s: Application
126. What is the present value of the following cash flow stream at a rate of 8.0%?
a.
$7,917
b.
$8,333
c.
$8,772
d.
$9,233
e.
$9,695
I/YR = 8.0%
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.04 – Time value of money
Bloom’s: Application
CHAPTER 05—TIME VALUE OF MONEY
CFs:
MODERATE
5-12 Uneven Cash Flows
127. You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective
price you received for the car assuming an interest rate of 6.0%?
a.
$5,987
b.
$6,286
c.
$6,600
d.
$6,930
e.
$7,277
a
CFs:
MODERATE
5-12 Uneven Cash Flows
128. At a rate of 6.5%, what is the future value of the following cash flow stream?
CHAPTER 05—TIME VALUE OF MONEY
a.
$526.01
b.
$553.69
c.
$582.83
d.
$613.51
e.
$645.80
e
CFs:
$501.99
$645.80
MODERATE
5-13 Future Value of an Uneven Cash Flow Stream
129. Your father paid $10,000 (CF at t = 0) for an investment that promises to pay $750 at the end of each of the next 5
years, then an additional lump sum payment of $10,000 at the end of the 5th year. What is the expected rate of return on
this investment?
a.
6.77%
b.
7.13%
c.
7.50%
d.
7.88%
e.
8.27%
c
CFs:
CHAPTER 05—TIME VALUE OF MONEY
130. You are offered a chance to buy an asset for $7,250 that is expected to produce cash flows of $750 at the end of Year
1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4. What rate of return would you
earn if you bought this asset?
a.
4.93%
b.
5.19%
c.
5.46%
d.
5.75%
e.
6.05%
e
CFs:
MODERATE
5-14 Solving for I with Uneven Cash Flows
131. What’s the future value of $1,500 after 5 years if the appropriate interest rate is 6%, compounded semiannually?
a.
$1,819
b.
$1,915
c.
$2,016
d.
$2,117
e.
$2,223
c
Periods/Yr
MODERATE
5-14 Solving for I with Uneven Cash Flows