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Finance: present value of annuty, decision etc.

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1. Carrie Tune will receive $19,500 a year for the next 20 years as a result of the new song she has written. If a 10 percent rate is applied, should she be willing to sell out her future rights now for $160,000?

2. At a growth (interest) rate of 8 percent annually, how long will it take for a sum to double? To triple? Select the year that is closest to the correct answer.

3. If you owe $30,000 payable at the end of five years, what amount should your creditor accept in payment immediately if she could earn 11 percent on her money?

4. Mr Flint retired as president of the Color Tile Company but is currently on a consulting contract for $45,000 per year for the next 10 years.

a. If Mr. Flint's opportunity cost (potential return) is 10 percent, what is the present value of his consulting contract?

b. Assuming that Mr. Flint will not retire for two more years and will not start to receive his 10 payments until he end of the third year, what would be the value of his deferred annuity?

5. Cousin Bertha invested $100,000 10 years ago at 12 percent, compounded quarterly. How much has she accumulated?

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Solution Summary

The problem set deals with the time value of money concept in finance.

Solution provided by:
Chidi Ngene, M. Sc.
Education
  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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