Answer the Questions and provide a clear explanation of the steps and formulas.

Nominal vs real Interest

Exercises

1. Calculating FV: Assume you deposit $10,000 today in an account that pays 6 percent interest. How much will you have in five years?
2. Calculating PV: Suppose you have just celebrated your 19th birthday. A rich uncle has set up a trust fund for you that will pay you $150,000 when you turn 30. If the relevant discount rate is 9 percent, how much is this fund worth today?
3. Calculating Rates of Return You've been offered an investment that will double your money in 10 years. What rate of return are you being offered?
4. Calculating the Number of Periods You've been offered an investment that will pay you 9 percent per year. If you invest $15,000, how long until you have $30,000? How long until you have $45,000?
5. Consider 2 projects: Each requires an immediate cash outlay of 10m$. Project 1 will return 13m$ at the end of 2 years. Project 2 will return 6,5m$ every year at the end. If the appropriate discount rate is 15%, does any of the 2 qualify? Which one?
6. Your association is thinking about running a venture which will involve a speculation of $1,000,000. The item from the venture is determined to make incomes of $250,000 in the primary year after the end of the venture and of $420,000 in each of the two after years. With a discount rate of 10% would this be an interesting investment option?
7. EB Ltd is considering 2 possible projects but can only raise enough funds to proceed with one of them. Investment appraisal techniques have been used and the following results found: Which of the followingis the most logical interpretation of the results?

Project W	Project X
Payback Period 3.8Years	Payback Period 2.8 Years
ARR 16%	ARR 14%
NPV 880,000	NPV 610,000