Question

1. You deposit $12,000 today into an account that pays you 12% annual interest, compounded daily. How much MORE will you have in 40 years, than if the compounding was only computed annually (as opposed to daily)?

a. $340,363.55

b. $1,356,895.45

c. $1,456,975.20

d. $1,116,611.65

e. $3,403,635.50

2. You want to set up an endowment fund at pwc that will provide $1M in scholarships to students annually, forever. Given an expected return of 6.5%, how much do you need in the endowment fund, today?

a. $153,846.15

b. $15,384,615.40

c. $65,000

d. $6,500,000

e. $1,000,000

3. Given a 4% required return, what is a $100 cash flow today, a $1,000 cash flow at the end of 1 year, and a $100,000 cash flow at the end of five years, worth to you AT THE END OF 5 YEARS?

Answer 1

1)	a. $340,363.55
Future Value on compounding daily	=fv(rate,nper,pmt,pv)		Where,
	= 14,56,975.20		rate	=	12%/365	=	0.000328767
			nper	=	40*365	=	14600
			pmt			=	0
			pv			=	-12000
Future Value on annual compounding	=fv(rate,nper,pmt,pv)		Where,
	=11,16,611.65		rate			=	12%
			nper			=	40
			pmt			=	0
			pv			=	-12000
Difference in Future Value	=	14,56,975.20	-	11,16,611.65
	=	3,40,363.55
2)	b. $15,384,615.40
Present Value of cash flow	=	Annual cash flow / Discount rate
	=	1000000/6.5%
	=	1,53,84,615.38
3)	$ 1,01,291.52
Future Value of:
100	=	100*1.04^(5-0)	=	121.67
1,000	=	1000*1.04^(5-1)	=	1,169.86
1,00,000	=	100000*1.04^(5-5)	=	1,00,000.00
Total				1,01,291.52