Die Dac TIME VALUE OF MONEY Uneven Stream of Cash Flows Assignments: Solve Time Value of Money Exercise Problems by filling up the boxes with keys and buttons you need to use on your FINANCIAL CALCULATOR. Q1: Ungrouped cash flows) You have been asked to make a $75,000 loan. The borrower agrees to the following repayment schedule: End of year 1 $ 0 End of year 2 $15,000 End of year 3 $20,000 End of year 4 $25,000 End of year 5 $30,000 If you require a rate of return of at least 11% on your investment, should you enter into this loan? to cover than your Since the NPV of the deal is (that is, the payments you receive are the amount of the loan), you should enter into this loan contract. (Or if you press "+, IRR/YR" (or [f], IRR) instead of "+, NPV", then you will get IRR= % which is required return of %; hence, you accept the deal). Q2: Ungrouped cash flows) To convince yourself of the wisdom of your recent decision to quit smoking (and this time you really mean it), you plan at the end of each of the next five years to put into a savings account earning 6% compound annual interest the money you would have spent on cigarettes. You anticipate that the amounts of the five deposits will be $400, $450, S500, S550, and $600. If all goes according to plan, how much will be in your account after five years? Q3: Grouped cash flows: end of year) The divorce is final and you have been awarded the following alimony: $5,000 at the end of each of the next three years, plus $6,000 at the end of each of the following five years, plus $7,000 at the end of each of the following ten years. If you remarry, however, you receive no further alimony. Measured in terms of present value and a discount rate of 6.5%, what will your wedding cost if you remarry today? Q4: Grouped cash flows) Which of the following two income streams would you rather have if interest rates currently are 7%? Beginning of Year Cash Flow End of Year Cash Flow 1 $2,000 1 0 2 $2,500 2 0 3 $3,000 OR 3 S5,500 4 $3,000 $5,500 s $3,000 S $5,500 4