ACCT500 - Week 5 - Problem Set

For the Week 5 Problem Set, show all work in an Excel book, labeling each item by the problem number.

Chapter 7 (page 149)

• Calculate the present value (PV) of a cash inflow of $500 in one year, and a cash inflow of $1,000 in 5 years, assuming a discount rate of 15%.

• Calculate the present value (PV) of an annuity stream of 5 annual cash flows of $1,200, with the first cash flow received in one year, assuming a discount rate of 10%.

• What is the present value of a perpetual stream of annual cash flows of $100, with the first cash flow to be received in one year, assuming a discount rate of 8%?

• What is the present value of a perpetual stream of annual cash flows, with the first cash flow of $100 to be received in one year, and with all subsequent cash flows growing at a rate of 3%, assuming a discount rate of 8%?

Additional Problems

A1. If you deposit $12,000 in a bank account that pays 10% interest annually, how much will be in your account after 7 years?

A2. What is the present value of a security that will pay $10,000 in 20 years at an interest rate of 8%?

A3. Find the future value of the following ordinary annuities:

• $600 per year for 10 years at 10%
• $300 per year for 5 years at 5%
• $600 per year for 5 years at 0%

A4. Find the present value of the following ordinary annuities:

• $600 per year for 10 years at 10%
• $300 per year for 5 years at 5%
• $600 per year for 5 years at 0%

Foerster, S. (2014) Financial Management: Concepts and Applications. Prentice Hall. VitalBook file.