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Quiz Time Value of Money Mba Model Answer

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Ahmed Mokhtar
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25 views5 pages

Quiz Time Value of Money Mba Model Answer

Uploaded by

Ahmed Mokhtar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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COORDINATOR:

COURSE NAME: Corporate Finance Dr. Menan / DR. Ahmed Rady


Time: [60 Minutes] MARKS: [ 15]
DATE:27 /4/ 2024 No. Pages

NAME: ID
Quiz 3

1. You have a $175,000, 30-year mortgage with a 9% nominal rate. You make payments every
year. What will be the remaining balance on your mortgage after 5 years?

2. You are willing to pay $15,625 to purchase a perpetuity, which will pay you and your heirs
$1,250 each year, forever. If your required rate of return does not change, how much would
you be willing to pay if this were a 20-year, annual payment, ordinary annuity instead of
perpetuity?
3. Samir is planning to attend 4-years college when he graduates from high school in 7 years
from now. He anticipates that he will need $10,000 at the beginning of each college year
to pay for tuitions and fees, and have some spending money. Samir’s dad will deposit
$3,500 at the end of each year for the next 7 years in a bank account paying 8% interest.
Will there be enough money in the account for Samir to pay for his college expenses?
Assume the rate of interest stays at 8% during the college years
4. A real estate investment has the following expected cash flows:

Year Cash Flows


1 $10,000
2 25,000
3 50,000
4 35,000

The discount rate is 8 percent. What is the investment’s present value?


5. Your dad deposited KD1,000 in a savings account that pays 8 percent interest, compounded
quarterly, planning to use it to finish your last year in college. Eighteen months later, you
decide to go to the Rocky Mountains to become a ski instructor rather than continue in
school, so you close out your account. How much money will you receive?
6. A wealthy industrialist wishes to establish a $2,000,000 trust fund, which will provide income
for his grandchild into perpetuity. He requires in the trust agreement that the principal may not
be distributed. The grandchild may only receive the interest earned. If the interest rate earned
on the trust is expected to be at least 7% in all future periods, how much income will the
grandchild receive each year?

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