Question

1. Assuming the same amount of money will be received at the end of the term, which of the following will have the highest present value?

6% interest for five years

6% interest for eight years

8% interest for ten years

6% interest for ten years

8% interest for five years

2. The time value of money is created by:

the fact that saving money is better than spending it

the elimination of the opportunity cost as a consideration

the existence of profitable investment alternatives and interest rates

the fact that the mere passing of time increases the value of money

3. You recently purchased a building for $200,000, paying $100,000 in cash and borrowing the rest. If the loan carries interest at 8% and is repaid in 10 equal annual (end-of-year) payments, what is the annual loan payment?

$10,000

$14,903

$29,806

$20,000

4.You just purchased a parcel of land for $20,000. If you expect a 12% annual rate of return on your investment, how much will you sell the land for in 10 years?

$77,440

$ 6,440

$50,000

$62,120

5. At 9% compounded annually, how long will it take $1,000 to double? (Select the closest year)

4 years

10 years

8 years

6 years

Answer 1

Lower the discount rate and time period, higher the present value

Hence, the answer is

6% interest for five years

2. the existence of profitable investment alternatives and interest rates

3.Annual loan payment = Loan Amount/PVAF

= 100,000/PVAF(8%, 10 years)

= $14,903

4.Amount after 10 years = 20,000(1.12)^10

= $62,116.96

I.e. $62,120

5.Number of years = 72/Interest rate

= 72/9

= 8 years