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Calculating PV and FV of annuties

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1.The present value of an ordinary annuity of $2,350 each year for eight years, assuming an opportunity cost of 11 percent, is

1. $27,869.
2. $ 1,020.
3. $12,093.
4. $18,800.

2.Dan plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

1. $51,880
2. $20,000
3. $31,874
4. $12,290

3.The present value of a $25,000 perpetuity at a 14 percent discount rate is

1. $178,571.
2. $219,298.
3. $285,000.
4. $350,000.

4.The future value of $200 received today and deposited at 8 percent for three years is

1. $158.
2. $252.
3. $248.
4. $200.

5.The annual rate of return is variously referred to as the

1. opportunity cost.
2. cost of capital.
3. discount rate.
4. all of these.

6.When the amount earned on a deposit has become part of the principal at the end of a specified time period the concept is called

1. discount interest.
2. primary interest.
3. future value.
4. compound interest.

7.In future value or present value problems, unless stated otherwise, cash flows are assumed to be

1. at the beginning of a time period.
2. at the end of a time period.
3. spread out evenly over a time period.
4. in the middle of a time period.

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Solution Summary

There are 7 basic problems related to time value of money concepts. Solutions depicts the steps to calculate present and future value annuities.

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Solution:

1.The present value of an ordinary annuity of $2,350 each year for eight years, assuming an opportunity cost of 11 percent, is
Present Value of annuity=2350/11%*(1-1/(1+11%)^8=12093.39
Answer is 3. $12,093.

2.Dan plans to fund his individual retirement account (IRA) with the maximum ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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