## Quiz 14 :

The Effects of Time and Risk on Value

Answer:

Calculate the present value by using the following formula:

Calculate the present value to earn $50 as follows:

Therefore, the present value to earn $50 is

.

Calculate the present value to earn $60 as follows:

Therefore, the present value to earn $50 is

.

Calculate the present value to be deposited as follows:

Therefore, the amount to be deposited is

.

Therefore the

is correct.

Answer:

This is simply a yield calculation problem. Like any time-value-of-money problem, we are given four inputs and are asked to solve for the fifth. In this case, we must solve for the interest rate as follows:

Solving this setup tells us the above loan yields a 15 percent return.

Answer:

At 10%, an investor would be willing to pay $909.09.

At 8%, an investor would be willing to pay $925.93.

At 12%, an investor would be willing to pay $892.86.