Integrated Case

5-42

First National Bank

Time Value of Money Analysis

You have applied for a job with a local bank. As part of its evaluation process, you must take an examination on time value of money analysis covering the following questions.

A. Draw time lines for (1) a 100 lump sum cash flow at the end of Year 2, (2) an ordinary annuity of 100 per year for 3 years, and (3) an uneven cash flow stream of -50, 100, 75, and 50 at the end of Years 0 through 3.

ANSWER: [Show S5-1 through S5-4 here.] A time line is a graphical representation that is used to show the timing of cash flows. The tick marks represent end of periods (often years), so time 0 is today; Time 1 is the end of the first year, or 1 year from today; and so on.

0

1

2

Year

I/YR%

Lump sum

100 Cash...