Time Value of Money

You want to buy an ordinary annuity that will pay you 4,000 a year for the next 20 years. You expect annual interest rates will be 8 percent over that time period. The maximum price you would be willing to pay for the annuity is closest to:

• 32,000

• 39,272

• 40,000

• 80,000

With continuous compounding at 10 percent for 30 years, the future value of an initial investment of 2,000 Baht is closest to:

• 34,899

• 50,171

• 164,500

• 328,282

In 3 years, you are to receive 5,000 Baht. If the interest rate were to suddenly increase, the present value of that future amount to you would:

• Fall

• Rise

• Unchange

• Not Able to Conclude

Assume that the interest rate is greater than zero. Which of the following cash-inflow streams should you prefer?

• 400 in Year1, 300 in Year2, 200 in Year3, 100 in Year4

• 100 in Year1, 200 in Year2, 300 in Year3, 400 in Year4

• 250 in Year1, 250 in Year2, 250 in Year3, 250 in Year4

• Any of Above since they each sum to 1,000

To increase a given present value, the discount rate should be adjusted...

• Upward

• Downward

• Stable

• Not Able to Conclude

For 1,000 Baht, you can purchase a 5-year ordinary annuity that will pay you a yearly payment of 263.80 Baht for 5 years. The compound annual interest rate implied by this arrangement is closest to:

• 8%

• 9%

• 10%

• 15%

You are considering borrowing 10,000 Baht for 3 years at an annual interest rate of 6%. The loan agreement calls for 3 equal payments, to be paid at the end of each of the next 3 years. (Payments include both principal and interest.) The annual payment that will fully pay off (amortize) the loan is closest to:

• 2,674

• 2,890

• 3,741

• 4,020

When n = 1, what interest factor equals one for any positive rate of interest?

• F/P

• P/A

• A/F

• F/A

(1 + i)ⁿ is…

• P/F

• F/P

• P/G

• None Are Correct