The future value of $I00 reraved today and deposited at 6 percent for four years

Question

The future value of $I00 reraved today and deposited at 6 percent for four years is $126 $79 $124 $116 The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is $236 $699 $ 42 $75 The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is $50 $200 $518 $ 77 The future value of a dollar as the interest rate increases and the further in the future an initial deposit is to be received. decreases; decreases decreases; increases increases; increases increases; decreases The present value of an ordinary annuity of $350 each year for five years, assuming an opportunity cost of 4 percent, is $288 $1,896 $1,750 $1,558 The present value of a $25,000 perpetuity at a 14 percent discount rate is. $178,571 $285,000 $350,000 $219,298

Explanation / Answer

(1) (A)

FV = $100 x (1.06)4 = $100 x 1.2625 = $126.25

(2) (C)

PV = $100 / (1.09)10 = $100 / 2.37 = $42.19

(3) (D)

PV = $200 / (1.1)10 = $200 / 2.37 = $77.11

(4) (C)

FV = PV x (1 + r)N

So, FV increases as r increases & increases as N increases.

(5) (D)

PF = $350 x PVIFA (4%, 5 years) = $350 x 4.4518 [From PVIFA table] = $1,558.13

(6) (A)

PV of perpetuity = $25,000 / Discount rate = $25,000 / 0.14 = $178,571.43

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