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6. Calculating Interest Rates Assume the total cost of a college education will be $200,000 when your child enters college in 18 years. You presently have $27,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child's college education?

7. Calculating the Number of Periods At 6 percent interest, how long does it take to double your money? To quadruple it?

8. Calculating Interest Rates You are offered an investment that requires you to put up $12,000 today in exchange for $40,000 15 years from now. What is the annual rate of return on this investment?

9. Calculating the Number of Periods You're trying to save to buy a new $120,000 Ferrari. You have $40,000 today that can be invested at your bank. The bank pays 5.5 percent annual interest on its accounts. How long will it be before you have enough to buy the car?

Calculating Present Values Imprudential, Inc., has an unfunded pension liability of $650 million that must be paid in 20 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 8.5 percent, what is the present value of this liability? Calculating Present Values You have just received notification that you have won the $1 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you're around to collect), 80 years from now. What is the present value of your windfall if the appropriate discount rate is 13 percent?

12. Calculating Future Values Your coin collection contains fifty 1952 silver dollars. If your parents purchased them for their face value when they were new,

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

III. Valuation of Future Cash Flows

5. Introduction to Valuation: The Time Value of Money

© The McGraw-Hill Companies, 2002

PART THREE Valuation of Future Cash Flows

Basic

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