Question 1: Calculating future value in a compound interest formula.
Samuel invested $30,000 at 9% effective annual interest rate for 6 years. Calculate the future
value of his investment.
Question 2: Calculating present value in a compound interest formula.
David would like to have a savings of $14,000 in an account at the end of five years. Calculate
the amount he needs to save now if the savings account earns an annually effective rate of
return of 4%.
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Question 3: Calculating effective interest rate in a compound interest formula.
Jennifer borrowed $16,000 from her best friend, four years later, Jennifer repaid her $20,000.
Calculate the effective annual interest rate.
Question 4: Calculating number of periods in a compound interest formula.
Edward invested $12,000 in a fund offering a rate of return of 4% per year, approximately how
many years will it take for the investment to reach $15,000?
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Question 5: Calculating yield to maturity in bond valuation.
John bought a bond on 1 July 2010 for $45,644.74 with a face value of $50,000 on 1 July 2016.
The coupon rate is 8% per annum. Estimate the yield to maturity
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Question 6: Capital Budgeting.
Alpha Limited is planning on investing in a new project. This will involve the purchase of some
new machinery costing $100 thousands that will be fully depreciated over 5 years. The salvage
value is zero at the end of year 5. Alpha Limited expects to receive cash flows of $50 thousands
at the end of year 1, $40 thousands at the end of year 2, $30 thousands at the end of year 3, $20
thousands at the end of year 4, and $10 thousands at the end of year 5. Alpha Limited expects
to receive net income of $10 thousands at the end of year 1, $9 thousands at the end of year 2,
$8 thousands at the end of year 3, $7 thousands at the end of year 4, and $6 thousands at the
end of year 5. The weighted average cost of capital is 14%.
1. Calculate net present value (NPV) for this project.
2. Without calculations, the internal rate of return (IRR) for this project is …………
a. Greater than 14%
b. Less than 14%
c. Equal to 14%
d. Cannot be calculated
3. Calculate modified internal rate of return (MIRR) for this project
4. Calculate profitability index (PI) for this project.
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5. Calculate payback period (PBP) for this project.
6. Calculate discounted payback period (DPBP) for this project.
7. Calculate accounting rate of return (ARR) for this project.

 

 

 

 

 

 

 

 

 

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