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Training Exercises

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9 views

Training Exercises

Uploaded by

mamaz.mieze
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Training

1. What is the Present Value of €500 received in 5 years if you use 5%, 7% and 10% discount rates?

2. What is the Present Value at 8% of €1,500 received in 3 years, 5 years and 10 years? What are the
discount factors (a discount factor is what multiplies the cash flow to discount it)?

3. How much would €5,000 be worth in five years, invested at 5%, 10% and 20%? And why is what you
obtain in the end with 20% not exactly the double of what you obtain in the end with 10%?

4. How much would €1,000 be worth in 5 years, 10 years and 20 years if it was invested at 8%? Why is
what you obtain at the end of the 20 years not the double of what you obtain at the end of 10 years?

5. You want to obtain your helicopter pilot’s licence. A club offers you lessons over two years, and the
price of all lessons is supposed to amount to €15,000. The club leaves you the choice between the
following payment terms:
a. you can either pay all lessons immediately with a 5% discount on the total price
(“discount” means “reduction” here, not the discount rate) ;
b. or you can make two annual payments: the first one, €7,000, due immediately, and the
remaining amount in 1 year from now.
Question: what discount rate "r" would make you indifferent between both proposals?

6. What is the present value at 5.75% (with yearly compounding) of €200 to be received in five years,
three months and 12 days?

7. How much would you have to invest today to have €100 in 7 years if the interest rate was 3.5 %?
What is the capitalisation factor?

8. At 7.5%, would you rather have €250 today or €359 in 5 years’ time? Why?

9. You are only prepared to forego immediate spending if you get a 7% return on your investment.
What would be the top price you would be prepared to pay for a security today that would pay you
€132 in 3 years? If other investors were asking for 5.5%, what would happen?

10. If instead of buying a sheep for 30 pieces of silver in year 28 BC, a man had invested them at
3.5% per annum, how much would his descendants get in 2022? And at 1.5%?

11.You have the choice between buying a painting for €125,000 which will be worth €215,000 in 7 years
and investing in government bonds at 8.05%. What would your choice be? Why?

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