Exam 4: Time Value of Money - Streams and Valuations

What is the present value of an ordinary annuity that pays $1,000 per year over each of the next twenty years if the discount rate is 10%? Round to the nearest whole dollar.

You are saving for your child's university education. It is her 1st birthday today. She will start university just after her 19th birthday. You are going to save $2,000 per year each year starting today and ending on her 18th birthday. If you expect to earn a rate of 5% in the savings account, then how much will you have saved by her 19^th birthday?

Sarah found her dream lakefront home, valued at $250,000. She plans to buy a home just like it when she retires in 15 years. Sarah can earn 11% per year on her investments. The price of the house will increase 3% per year for the next 15 years. How much must she invest at the end of each of the next 15 years to finance the purchase?

Find the present value of a 5-year annuity due if the annual payments are $600 and the interest rate is 11%. How much larger is the present value of the annuity due than the present value of the ordinary 5-year annuity?

In future value or present value problems, unless stated otherwise, cash flows are assumed to be:

Consider an investor who invests $600 per month (end-of-month)over thirty years in a mutual fund that earns 1% per month. What is the future value of her savings?

You can invest $3,000 at the end of each of the next 20 years into a retirement account paying 10% annual interest. Alternatively, you can enter into a retirement plan with your employer where, for every yearly (end-of-year)payment of $3,000 you make, the firm will contribute $1,500. Your employer's plan will also last for the next 20 years. The firm guarantees a return of 7% on its retirement plan. Which option is better?

Donna makes annual end of year payments of $5,403.71 on a four year loan with an interest rate of 13 percent. The original principal amount was: (Round to the nearest whole dollar)

You expect to receive $800 at the end of each of the next twenty years. What is the present value of the stream of payments if the interest rate is 12%?

A Silver Hummer H3 sells for $98,000 tax included. GMAC lends money at the rate of 6.9% APR. You are at the beginning of the fourth year of a seven year term. You are making monthly payments on the loan. How much interest do you pay in the first month of the fourth year of the loan?

You would like to buy a Harley Davidson and you can afford to make a down payment of $2,000 and pay monthly (end-of-month)payments of $1,320. If the term is 36 months and the loan rate is 9% (APR), then what is the maximum that you can pay for the motorcycle?

You have been offered a project paying $300 at the beginning of each year for the next 20 years. The first payment occurs at the beginning of the first year. What is the maximum amount of money you would invest in this project if you expect 9 percent rate of return to your investment? (Round to the nearest whole dollar)

Bill plans to fund his individual retirement account (IRA)with a maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of twentieth year? (Round to the nearest whole dollar)

What is the future value of an annuity due that pays $500 per year for each of the next three years if the interest rate is 6%?

A generous philanthropist plans to make a one-time endowment to a renowned heart research center which would provide the facility with $250,000 per year into perpetuity. The rate of interest is expected to be 8 percent for all future time periods. How large must the endowment be?

What is the future value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15% interest rate?

An ordinary annuity may be defined as:

The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of next 10 years is: (Round to the nearest whole dollar)

In comparing an ordinary annuity and an annuity due, which of the following is true?

South Penn Tracking is financing a new truck with a loan of $10,000 to be repaid in 5 annual end-of-year installments of $2,504.56. What annual interest rate is the company paying?