Chapter 9

 

9.1 Find the following values for a lump sum assuming annual compounding:

 

 

a The future value of $500 invested at 8 percent for one year

 

 

b The future value of $500 invested at 8 percent for five years

 

 

c The present value of $500 to be received in one year when the opportunity cost rate is 8 percent

 

 

d The present value of $500 to be received in five years when the opportunity cost rate is 8

 

percent

 

 

9.4 Find the following values assuming a regular, or ordinary, annuity:

 

 

a The present value of $400 per year for ten years at 10 percent

 

 

b The future value of $400 per year for ten years at 10 percent

 

 

c The present value of $200 per year for five years at 5 percent

 

 

d The future value of $200 per year for five years at 5

 

 

 

9.6 Consider the following uneven cash flow stream:

 

 

Year                                Cash Flow

 

0                                      $0        

 

1                                        250

 

2                                        400

 

3                                        500

 

4                                        600

 

5                                        600

 

 

 

a What is the present (Year 0) value if the opportunity cost (discount) rate

 

 

is 10 percent? 

 

 

 

9.7 Consider another uneven cash flow stream:

 

 

a What is the present (Year 0) value of the cash flow stream if the opportunity cost rate is 10

 

percent?

 

 

b What is the value of the cash flow stream at the end of Year 5 if the cash flows are invested in

 

an account that pays 10 percent annually

 

9.9 Assume that you just won $35 million in the Florida lottery, and hence the state

 

 

will pay you 20 annual payments of $1.75 million each beginning immediately. If

 

 

the rate of return on securities of similar risk to the lottery earnings (e.g., the

 

 

rate on 20-year U.S. Treasury bonds) is 6 percent, what is the present value of

 

 

 your winnings?