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Week 4 Numerical Exercises
S. No.Problem1Given the following data, solve for the number of years in each case. (Use a financial calculator).
Present Value
Interest rate
Future Value
Years
$1,200
8%
$2,590.71
$16,310
12%
$20,459.26
$75,000
3%
$182,044.69
$183,650
9%
$308,000
2You expect your newly born child to attend college in 18 years. You have $12,000 to set aside for that purpose.You also expect that the total cost of college education to be $100,000 by that time.
Calculate the interest rate at which you have to invest today to achieve your goal.
3How long does it take to double your money at 9% interest rate?
4How long does it take to triple your money at 9% interest rate?
5Great Lakes Inc. has an unfunded pension liability of $300 million that must be paid in 18 years. The financial analyst wants to discount this liability back to, present for valuation purposes.
The appropriate discount rate is 8%.
What is the present value of this liability?
6Highlight Inc. is considering an investment project with the following cash flows:
YEAR
Cash Flow
1
$300
2
$400
3
$600
4
$900
If the discount rate is 10% , calculate the present value of these cash flows
What will be the present value if the discount rate is changed to 15%
7Solarlight Inc. is considering a project with the following cash flows :
YEAR
Cash Flow
1
$800
2
$700
3
$600
4
$500
Calculate the future value of these cash flows in year 4., if the interest rate is 12%
What will be the present value if the interest rate is changed to 16%?
8Newsys Inc. will generate $30,000 per year for the next five years from a new database system. The system requires an investment of 120,000 today. If the opportunity cost of funds is 6%, is the system worth installing?9An investment pays $2,000 per year for 10 years. The payments occur at the end of each year The required rate of return in 12%.
Calculate the value of the investment today.
What will be its value if the payments occurred at the beginning of each year?
10If Mr. Hobbit deposits $2,000 at the end of each year for the next 10 years at an interest rate of 12% per year, how much will be have accumulated? How much will he have accumulated if he deposited the amounts at the beginning of each year?11Find the present value of a perpetuity that pays $2,000 per year and the interest rate is 10%
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