8. What annual rate of return is earned on a $500 investment when it grows to $880 in ten years?
9. Gretchen wants to retire in 35 years and she has saved $160,000 as of today. She wants the account to grow
to $1,250,000 upon retirement. If interest is compounded annually, what rate will Gretchen need to earn on
the account to achieve this goal?
10. What is the present value of a $10,000 cash flow made in year 15 when interest rates are 8.50 percent?
11. What is the value in year 3 of a $1,750 cash flow made in year 12 when interest rates are 12.5 percent?
12. What is the value in year 5 of a $2,500 cash flow made in year 15 when interest rates are 18 percent?
13. Moving cash flows from one point in time to another requires us to use
A. the Rule of 72.
B. the Law of Demand
C. only present value equations.
D. only future value equations.
E. both (or either) present value and future value equations.
14. As the discount rate increases without limit, the present value of the future cash inflows:
A. Gets smaller without limit, that is, approaches minus infinity.
B. Gets larger with some limit.
C. Approaches positive infinity
D. Stays unchanged.
E. Approaches zero.
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