Apply Time Value Of Money Concepts Practice Test

A private retail chain is choosing between two financing options for a $900,000 store remodel. Loan A requires annual payments of $213,000 for 5 years at a stated annual rate of 7% (payments at year-end). Loan B requires annual payments of $205,000 for 5 years at a stated annual rate of 8% (payments at year-end). Based on present value analysis using each loan’s stated rate, what is the most cost-effective loan option?

A public energy company is valuing a 15-year bond with a $10,000,000 face value that pays 8% annual coupons (paid at year-end). If the market yield is 9% compounded annually, what is the present value of the bond's cash flows (rounded to the nearest $10,000)?