Practice Questions
A collection of practice questions from past exams about all topics and types.
Solving for missing cash flows
The present value (t=0) of the following cash flow stream is $3,569.17 when discounted at 7.25% compounded quarterly: 0.5x at the end of year 1, $412 at the end of year 2, 2.4x at the end of year 3, and $175 at the end of year 4. Assume this pattern of payments will continue in perpetuity (every 4 years). What is the value of the missing cash flows (x)?
Solving for missing cash flows
Your friends, Lee and Kuan, are struggling to solve for the missing cash flows of the following cash flow stream:
In fact, they're convinced that "x" must be $115.16. Note that the present value of the above cash stream with annual payments is $5,095.00, and the discount rate is 8.9411% compounded 365 time(s) per year.
Solving for missing Normal Annuity PMTs
Your 6-year-old wants to go to Princeton for Med School. This will cost you $120,000 per year for 6 years. On her next birthday you start putting money into an account paying 8% annually and continue to deposit the same amount every year until her 17th birthday.
Solving for the future value of a growing annuity
Your job pays you at the end of the year and today, December 31, you just received your salary of $125,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next year. You have decided that one year from today you will begin depositing 20% of your annual salary in an account that will earn 4.5% per year.
Solving for missing /different coupon payments
Fuji TV (フジテレビ) issues bonds with a $1,000 face value and a 20-year maturity. The bond makes semi-annual coupon payments of $60 each until the end of year 10. After that, the bond makes semi-annual coupon payments of $90 each until maturity.