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1. Find the values for the following: a. An initial $500 compounded for 1 year at 6 percent. b. An initial $500 compounded for 2 years at 6% percent. c. The present value of $500 due in 1 year at a discount rate of 6 percent. d. The present value of $500 due in 2 years at a discount rate of 6 percent.

1. Find the values for the following: a. An initial $500 compounded for 1 year at 6 percent. b. An initial $500 compounded for 2 years at 6% percent. c. The present value of $500 due in 1 year at a discount rate of 6 percent. d. The present value of $500 due in 2 years at a discount rate of 6 percent.

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA3: Time Value Of Money
Section: Chapter Questions
Problem 11E
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4:04 ** Edit Additional Exercise Questions on Time Value of Money MGTC03, Prof. Jason Z. Wei 1. Find the values for the following: a. An initial $500 compounded for 1 year at 6 percent. b. An initial $500 compounded for 2 years at 6% percent. c. The present value of $500 due in 1 year at a discount rate of 6 percent. d. The present value of $500 due in 2 years at a discount rate of 6 percent. 3. Which grows to a larger future value, $1000 invested for 2 years at: a. 10 percent each year b. 5 percent the first year and 15 percent the second year or c. 15 percent the first year and 5 percent the second year? Explain your results. 2. What is the monthly payment on a 5 year car loan for $14,000 at an annual interest rate of 12%? 4. Which grows to a larger future value: a. $4000 invested for 10 years at 5% or b. $2000 invested for 10 years at 10%. 5. Which is worth more at 10 percent, compounded annually: $1000 in hand today or $2,000 due in 5 years? 8 6. A paper company invests $4m to clear a tract of land and plant some young pine trees. The trees will mature in 10 years, at which time the forest will have a market value of $8m. What is the expected rate of return for the paper company's investment? 24 x 7. A 1987 advertisement in the New Yorker solicited offers on a 1967 Mercury Cougar XR7 (Motor Trend's 1967 car of the year) that had been stored undriven in a climate controlled environment for 20 years. If the original owner paid $4000 for this car in 1967, what price would he have to receive in 1987 to obtain a 10 percent annual return on his investment? 8. Vincent Van Gogh sold only one painting during his lifetime, for about $30. A sunflower still life he painted in 1888 sold for $39.85 million in 1988,, more than three times the highest price paid previously for any work of art. If this painting had been purchased for $30 in 1888 and sold in 1988 for $39.85 million, what would have been the annual rate of return? Mobile View 9. In 1940, your grandmother put $1000 into a special trust to be paid to a future grandchild (you) 60 years later, in the year 2000. How much will this trust be worth in the year 2000 if it has been earning 8%? How much if it earns 12%. 10. A lottery jackpot of one million is paid out $25,000 a year for 40 years. At a 10 percent DO DO Tools Share O W PDF to DOC Edit on PC
Transcribed Image Text:4:04 ** Edit Additional Exercise Questions on Time Value of Money MGTC03, Prof. Jason Z. Wei 1. Find the values for the following: a. An initial $500 compounded for 1 year at 6 percent. b. An initial $500 compounded for 2 years at 6% percent. c. The present value of $500 due in 1 year at a discount rate of 6 percent. d. The present value of $500 due in 2 years at a discount rate of 6 percent. 3. Which grows to a larger future value, $1000 invested for 2 years at: a. 10 percent each year b. 5 percent the first year and 15 percent the second year or c. 15 percent the first year and 5 percent the second year? Explain your results. 2. What is the monthly payment on a 5 year car loan for $14,000 at an annual interest rate of 12%? 4. Which grows to a larger future value: a. $4000 invested for 10 years at 5% or b. $2000 invested for 10 years at 10%. 5. Which is worth more at 10 percent, compounded annually: $1000 in hand today or $2,000 due in 5 years? 8 6. A paper company invests $4m to clear a tract of land and plant some young pine trees. The trees will mature in 10 years, at which time the forest will have a market value of $8m. What is the expected rate of return for the paper company's investment? 24 x 7. A 1987 advertisement in the New Yorker solicited offers on a 1967 Mercury Cougar XR7 (Motor Trend's 1967 car of the year) that had been stored undriven in a climate controlled environment for 20 years. If the original owner paid $4000 for this car in 1967, what price would he have to receive in 1987 to obtain a 10 percent annual return on his investment? 8. Vincent Van Gogh sold only one painting during his lifetime, for about $30. A sunflower still life he painted in 1888 sold for $39.85 million in 1988,, more than three times the highest price paid previously for any work of art. If this painting had been purchased for $30 in 1888 and sold in 1988 for $39.85 million, what would have been the annual rate of return? Mobile View 9. In 1940, your grandmother put $1000 into a special trust to be paid to a future grandchild (you) 60 years later, in the year 2000. How much will this trust be worth in the year 2000 if it has been earning 8%? How much if it earns 12%. 10. A lottery jackpot of one million is paid out $25,000 a year for 40 years. At a 10 percent DO DO Tools Share O W PDF to DOC Edit on PC
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