# Time Value of Money

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

a) The future value of \$500.00 invested at 8 % for one year

b) The future value of \$ 500.00 invested at 8% for five years

c) The present value of \$500.00 to be received in one year when the opportunity cost rate is 8%

d) The present value of \$500.00 to be received in five years when the opportunity rate cost rate is 8%

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

a) The present value of \$400.00 per year for ten years at 10%

b) The future value of \$400.00 per year for ten years at 10%

c) The present value of \$200.00 per year for five years at 5%

d) The future value of \$200.00 per year for five years at 5%

Question 9.6Consider 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%

b) Add an outflow (or cost) of \$1,000 at Year 0. What is the present value (or net present value) of the stream?

Question 9.7 Consider another uneven cash flow stream:

Year                                                              Cash Flow

0                                                                         \$2,000

1                                                                           2,000

2                                                                                0

3                                                                           1,500

4                                                                            2,500

5                                                                            4,000

a) What is the present (year 0) value of the cash flow if the opportunity cost rate is 10 percent?

b) What is the future (year 5) value of the cash flow stream if the cash flows are invested in an account that pays 10% annually?

Question 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%, what is the present value of your winnings?

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