# Npv and the time value of money (multiple choice) 1. an

NPV AND THE TIME VALUE OF MONEY

(multiple choice)

1. An annuity pays $10 per year for 50 years. What is the future value (FV) of this annuity at the end of that 50 years given that the discount rate is 5%? (Points : 6)

$182.56

$525.00

$845.25

$2093.48

2. You are considering purchasing a new home. You will need to borrow $250,000 to purchase the home. A mortgage company offers you a 15-year fixed rate mortgage (180 months) at 9% APR (0.75% month). If you borrow the money from this mortgage company, your monthly mortgage payment will be closest to: (Points : 6)

$2585

$660

$2535

$1390

3. What is the present value (PV) of an investment that will pay $400 in one year’s time, and $400 every year after that, when the interest rate is 5%? (Points : 5)

$2400

$3600

$7200

$8000

4. What is the present value (PV) of $50,000 received 20 years from now, assuming the interest rate is 4% per year? (Points : 5)

$5,242.88

$10,000.00

$22, 819.35

$40,000.00

5. An annuity is set up that will pay $1500 per year for ten years. What is the present value (PV) of this annuity given that the discount rate is 6%? (Points : 5)

$8441

$11,040

$14,721

$19,771

6. In order to distinguish between inflows and outflows, different colors are assigned to each of these cash flows when constructing a timeline. (Points : 6)

True

False

7. What is the present value (PV) of $80,000 received ten years from now, assuming the interest rate is 5% per year? (Points : 5)

$38,422.76

$40,000.00

$49,113.06

$76,000.00

8. A homeowner in a sunny climate has the opportunity to install a solar water heater in his home for a cost of $2400. After installation the solar water heater will produce a small amount of hot water every day, forever, and will require no maintenance. How much must the homeowner save on water heating costs every year if this is to be a sound investment? (The interest rate is 9% per year.) (Points : 6)

$216

$240

$248

$262

9. You are considering investing in a zero-coupon bond that will pay you its face value of $1000 in ten years. If the bond is currently selling for $485.20, then the internal rate of return (IRR) for investing in this bond is closest to: (Points : 6)

12%

8.0%

7.5%

10%

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