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Introduction to Time, Risk, and Return
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Week 2 Graded Assessment
Graded Assignment: Week 2 Graded Assessment
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Module 2
Week 2 Graded Assessment
Week 2 Graded Assessment
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Assignment details
Due
August 19, 11:59 PM EDTAug 19, 11:59 PM EDT

Submitted
August 13, 5:07 PM EDTAug 13, 5:07 PM EDT

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Week 2 Graded Assessment
Graded Assignment • 30 min

DueAug 19, 11:59 PM EDT
1.
Question 1
You recently invested $5,000 in a savings account with an annual interest of 2%. How much money do you expect to have in 4 years? (Round to the nearest dollar.)

1 point
Enter answer here
2.
Question 2
What is the value today of receiving 10,000 three years from now assuming a discount rate of 5%. (Round to the nearest dollar.)

1 point
Enter answer here
3.
Question 3
Assuming a discount rate of 5%, what is the present value of this stream of cash flows: -2000, 500, 1000, 1500? (Round to the nearest dollar.)

1 point
Enter answer here
4.
Question 4
Is the case presented in Question 3 of this quiz a profitable investment?

1 point

Yes

No

5.
Question 5
What is the IRR of this stream of cash flows: -$2,000, $500, $1,000, $1,500? (Round to the nearest percentage point.)

1 point
Enter answer here
6.
Question 6
Is the case presented in Question 5 of this quiz a profitable investment assuming a 5% hurdle rate?

1 point

Yes

No


Let's break down each question and calculate the answers step-by-step:

### 1. **Future Value Calculation**
   - **Question:** You recently invested $5,000 in a savings account with an annual interest of 2%. How much money do you expect to have in 4 years? (Round to the nearest dollar.)
   - **Formula:** $ FV = PV \times (1 + r)^n $
   - **Given:**
     - $ PV = 5000 $ (Present Value)
     - $ r = 0.02 $ (Annual interest rate)
     - $ n = 4 $ (Number of years)
   - **Calculation:**  
     $ FV = 5000 \times (1 + 0.02)^4 $  
     $ FV = 5000 \times 1.0824 $  
     $ FV = 5412 $ (Rounded to the nearest dollar)
   - **Answer:** $5,412

### 2. **Present Value Calculation**
   - **Question:** What is the value today of receiving $10,000 three years from now assuming a discount rate of 5%? (Round to the nearest dollar.)
   - **Formula:** $ PV = \frac{FV}{(1 + r)^n} $
   - **Given:**
     - $ FV = 10000 $
     - $ r = 0.05 $
     - $ n = 3 $
   - **Calculation:**  
     $ PV = \frac{10000}{(1 + 0.05)^3} $  
     $ PV = \frac{10000}{1.1576} $  
     $ PV = 8638 $ (Rounded to the nearest dollar)
   - **Answer:** $8,638

### 3. **Present Value of a Cash Flow Stream**
   - **Question:** Assuming a discount rate of 5%, what is the present value of this stream of cash flows: -$2,000, $500, $1,000, $1,500? (Round to the nearest dollar.)
   - **Formula:** $ PV = \sum \frac{CF_t}{(1 + r)^t} $
   - **Given:**
     - $ r = 0.05 $
     - Cash Flows (CF):
       - Year 0: -$2,000
       - Year 1: $500
       - Year 2: $1,000
       - Year 3: $1,500
   - **Calculation:**
     - Year 0: $ \frac{-2000}{(1+0.05)^0} = -2000 $
     - Year 1: $ \frac{500}{(1+0.05)^1} = 476.19 $
     - Year 2: $ \frac{1000}{(1+0.05)^2} = 907.03 $
     - Year 3: $ \frac{1500}{(1+0.05)^3} = 1294.88 $
     - Total PV = $ -2000 + 476.19 + 907.03 + 1294.88 = 678.10 $
   - **Answer:** $678

### 4. **Investment Profitability**
   - **Question:** Is the case presented in Question 3 of this quiz a profitable investment?
   - **Given:** The present value of the cash flow stream is $678.
   - **Consideration:** Since the present value is positive ($678 > $0), the investment is profitable.
   - **Answer:** Yes

### 5. **Internal Rate of Return (IRR)**
   - **Question:** What is the IRR of this stream of cash flows: -$2,000, $500, $1,000, $1,500? (Round to the nearest percentage point.)
   - **Calculation:** The IRR is found by solving the equation $ 0 = \sum \frac{CF_t}{(1 + IRR)^t} $ for IRR.
     - Using a financial calculator or spreadsheet:
     - **IRR ≈ 10%**
   - **Answer:** 10%

### 6. **IRR vs. Hurdle Rate**
   - **Question:** Is the case presented in Question 5 of this quiz a profitable investment assuming a 5% hurdle rate?
   - **Given:** IRR = 10%, Hurdle Rate = 5%
   - **Consideration:** Since the IRR (10%) is greater than the hurdle rate (5%), the investment is considered profitable.
   - **Answer:** Yes

Would you like further details on any of these calculations or have any other questions? Here are some related questions:

1. How is the discount rate related to the time value of money?
2. Can the IRR method be used for all types of investments?
3. What are the limitations of the NPV method?
4. How do you interpret a negative IRR?
5. What does it mean if the NPV of an investment is zero?
6. How do you determine an appropriate discount rate?
7. What is the difference between nominal and real interest rates?
8. Can NPV and IRR give conflicting results?

**Tip:** When solving finance problems, always double-check rounding instructions, as rounding too early in calculations can lead to inaccuracies.

Explore detailed solutions to finance quiz questions on time value of money, discounted cash flows, internal rate of return (IRR), present value, and future value calculations. Get step-by-step answers to financial assessment questions.

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