Exam 8: Time Value of Moneypart I: Future and Present Value of Lump Sums

If inflation averages 6 percent per year, what is the loss of purchasing power for a dollar ten years from now?

You have an absolutely brilliant child who is six years old and will be attending a private college in twelve years. You know that a four -year college now costs at least $30,000 per year, including tuition, books, and room and board. The cost of sending a child to college has increased by 7 percent per year, and you believe this will be true for the next twelve years. How much will the annual tuition be when your child is eighteen?

Using the rule of 72, how long will it take $1,000 to double if you earn 6% interest per year?

If your money doubled in 8 years, then your annual rate of interest is approximately

Fixed Principal Commercial Loans use the same principal payment for the duration of the loan.

Another name for the effective rate is the stated, or quoted, rate.

A noted free agent running back just signed a four -year, 30 -million dollar contract with a new team. He will get a 7 -million dollar signing bonus and a 4.5 -million dollar roster bonus. Additionally, he will get 3.25 million for year one, 5.25 million for year two, 5 million for year three, and 5 million for year four. Salary is paid at the end of the first year. Find the present value of his contract if money can earn 6%.

If you purchase an automobile for $20,000 in 2006 and inflation is 4 percent, how much would a similar automobile sell for four years from then?

You have to make a balloon payment on your house five years from now of $15,000. If money can earn an average of 6 percent a year for the five -year period, how much interest will you earn on your deposit in five years?

You have an absolutely brilliant child who is six years old and will be attending a private college in twelve years. You know that a four -year college now costs at least $30,000 per year, including tuition, books, and room and board. The cost of sending a child to college has increased by 7 percent per year, and you believe this will be true for the next twelve years. How much more tuition will you have to pay per year when your child is eighteen?

N. Trest bought a $10,000 Treasury bill at a 2.38% discount for 13 weeks (91 days). How much does N pay for the bond?

JT purchases 1,000 shares of stock at $14.78 per share in January 2006. He sells the 1,000 shares in January 2010 for $15.50 per share. What is his internal rate of return?

A college education costs approximately $75,000 at an Ivy League school. If inflation averages 8% per year, how much more would the education cost in 15 years?

The effective rate does not take compounding into effect.

When you go to a financial institution to obtain a loan, the rate of interest normally quoted will be the

Joe M. purchases a house for $365,000. He sells the home 5 years later for $440,000. What is his internal rate of return (IRR)?

If you want an effective rate of 6 percent, what is an acceptable quoted rate if interest is compounded quarterly?

Fixed Principal Commercial Loans use a fixed interest rate but vary the principal payment.