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NPV AND THE TIME VALUE OF MONEY (multiple choice) 1. An annuity pays $10 per year for 50 years. What is the future value (FV) of this annuity at the end of that 50 years given that the discount rate is 5%? (Points : 6) $182.56 $525.00 $845.25 $2093.48 2. You are considering purchasing a new home. You will need to borrow $250,000 to purchase the home. A mortgage company offers you a 15-year fixed rate mortgage (180 months) at 9% APR (0.75% month). If you borrow the money from this mortgage company, your monthly mortgage payment will be closest to: (Points : 6) $2585 $660 $2535 $1390 3. What is the present value (PV) of an investment that will pay $400 in one year’s time, and $400 every year after that, when the interest rate is 5%? (Points : 5) $2400 $3600 $7200 $8000 4. What is the present value (PV) of $50,000 received 20 years from now, assuming the interest rate is 4% per year? (Points : 5) $5,242.88 $10,000.00 $22, 819.35 $40,000.00 5. An annuity is set up that will pay $1500 per year for ten years. What is the present value (PV) of this annuity given that the discount rate is 6%? (Points : 5) $8441 $11,040 $14,721 $19,771 6. In order to distinguish between inflows and outflows, different colors are assigned to each of these cash flows when constructing a timeline. (Points : 6) True False 7. What is the present value (PV) of $80,000 received ten years from now, assuming the interest rate is 5% per year? (Points : 5) $38,422.76 $40,000.00 $49,113.06 $76,000.00 8. A homeowner in a sunny climate has the opportunity to install a solar water heater in his home for a cost of $2400. After installation the solar water heater will produce a small amount of hot water every day, forever, and will require no maintenance. How much must the homeowner save on water heating costs every year if this is to be a sound investment? (The interest rate is 9% per year.) (Points : 6) $216 $240 $248 $262 9. You are considering investing in a zero-coupon bond that will pay you its face value of $1000 in ten years. If the bond is currently selling for $485.20, then the internal rate of return (IRR) for investing in this bond is closest to: (Points : 6) 12% 8.0% 7.5% 10%

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