TUTORIAL 04 TIME VALUE OF

MONEY

1. You are valuing an investment

that will pay you $27,000 per TUTORIAL 04 TIME VALUE OF
year for the first ten years, MONEY
$35,000 per year for the next
1. You are valuing an investment
ten years, and $48,000 per
that will pay you $27,000 per
year the following ten years (all
year for the first ten years,
payments are at the end of
$35,000 per year for the next
each year). If the appropriate
ten years, and $48,000 per
annual discount rate is 9.00%,
year the following ten years (all
what is the value of the
payments are at the end of
investment to you today?
each year). If the appropriate
2. You are planning for retirement
annual discount rate is 9.00%,
34 years from now. You plan to
what is the value of the
invest $4,200 per year for the
investment to you today?
first 7 years, $6,900 per year
2. You are planning for retirement
for the next 11 years, and
34 years from now. You plan to
$14,500 per year for the
invest $4,200 per year for the
following 16 years (assume all
first 7 years, $6,900 per year
cash flows occur at the end of
for the next 11 years, and
each year). If you believe you
$14,500 per year for the
will earn an effective annual
following 16 years (assume all
rate of return of 9.7%, what will
cash flows occur at the end of
your retirement investment be
each year). If you believe you
worth 34 years from now?
will earn an effective annual
3. Exactly ten years from now Sri
rate of return of 9.7%, what will
chand will start receiving a
your retirement investment be
pension of Rs 3000 a year. The
worth 34 years from now?
payment will continue for
3. Exactly ten years from now Sri
sixteen years. How much is the
chand will start receiving a
pension worth now, if Sri
pension of Rs 3000 a year. The
chands interest rate is 10%.
payment will continue for
4. How the earnings of the
sixteen years. How much is the
existing shareholders diluted if
pension worth now, if Sri
the profits do not increase
chands interest rate is 10%.
immediately in proportion to
4. How the earnings of the
the increase in number of
existing shareholders diluted if
ordinary shares?
the profits do not increase
5. If preference shares do have a
immediately in proportion to
fixed divided, than how it is
the increase in number of
different from bonds?
ordinary shares?
6. If the shareholders are the
5. If preference shares do have a
owners of the organization,
fixed divided, than how it is
than why do they have residual
different from bonds?
claim on income and assets.
6. If the shareholders are the
owners of the organization,
than why do they have residual
claim on income and assets.