# NPV AND THE TIME VALUE OF MONEY (multiple choice) 1. An annuity pays \$10 per year for 50 years. What…

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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