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Time value of money (TVM) for Cathy, Don Corp, Carol Thomas

Cathy sets aside $2,000 each year for 5 years. She then withdraws the funds on an equal annual basis for the next 4 years. If Cathy wishes to determine the amount of the annuity to be withdrawn each year, she should use the following two tables in this order:
a. present value of an annuity of $1; future value of an annuity of $1
b. future value of an annuity of $1; present value of an annuity of $1
c. future value of an annuity of $1; present value of a $1
d. future value of an annuity of $1; future value of a $1

Don Corp. expects to receive $2,000 per year for 10 years and $3,500 per year for the next 10 years. What is the present value of this 20 year cash flow. Use a 11% discount rate.
a. $19,034
b. $27,870
c. $32,389
d. none of the above

Carol Thomas will pay out $6,000 at the end of year 2, $8,000 at the end of year 3 and receive $10,000 at the end of year 4. With an interest rate of 13 percent, how much money does she need to have on hand to meet her obligations? Consider all flows of money in making your decision.
a. $7,326
b. $10,242
c. $16,372
d. $4,112

To save for her newborn son's college education, Gail will invest $1,000 at the beginning of each year for the next 18 years. The interest rate is 12 percent. What is the future value?

a. $7,690
b. $34,931
c. $63,440
d. $55,570

Solution Preview

Cathy sets aside $2,000 each year for 5 years. She then withdraws the funds on an equal annual basis for the next 4 years. If Cathy wishes to determine the amount of the annuity to be withdrawn each year, she should use the following two tables in this order:
a. present value of an annuity of $1; future value of an annuity of $1
b. future value of an annuity of $1; present value of an annuity of $1
c. future value of an annuity of $1; present value of a $1
d. future value of an annuity of $1; future value of a $1

Answer: B

Don Corp. expects to receive $2,000 per year for 10 years and $3,500 per year for the next 10 years. What is ...

Solution Summary

This solution is comprised of a detailed explanation to answer what is the present value of this 20 year cash flow, how much money does she need to have on hand to meet her obligations, and what is the future value.

$2.19