Exam 9: Time Value of Money

Money has a time value so long as interest is earned by saving or investing money.

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

If the stated or nominal interest rate is 10 percent and the inflation rate is 5 percent, the net or differential compounding rate would be ________ percent

If an investment pays 7% interest and you invest $1,000, about how long will it take you to double your money?

Future value = Present value + (1 x Interest).

Tracey deposits $5,000 in a five-year certificate of deposit paying 6% compounded semi-annually. How much will Tracey have at the end of the five-year period?

A loan that is repaid in equal payments over a specified time period is called a (n)

For a given discount rate, an ordinary annuity and an annuity due have the same present value.

The annual percentage rate (APR) overstates the true or effective interest cost.

A series of equal payments or receipts that occur at the beginning of each of a number of time periods is referred to as:

The future value of an ordinary annuity of $5,000 invested at 8% in 5 years would result in a value of:

A wealthy inventor has decided to endow her favorite art museum by establishing funds for an endowment which would provide $1,000,000 per year forever. She will fund the endowment upon her fiftieth birthday 10 years from today. She plans to accumulate the endowment by making annual end-of-year deposits into an account. The rate of interest is expected to be 6 percent in all future periods. How much must the scientist deposit each year to accumulate to the required amount?

Barbara borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments. The actual end-of-year payment is

Carol is planning for her son's college education to begin five years from today. She estimates the yearly tuition, books, and living expenses to be $5,000 per year for a four-year degree. How much must Carol deposit today, at an interest rate of 8 percent, for her son to be able to withdraw $5,000 per year for four years of college?

A loan that is repaid in equal payments over a specified time period is referred to as a(n):

At a zero interest rate, the present value of $1 remains at $1 and is not affected by time.

John deposits $2,000 per year at the end of the year for the next 20 years into an IRA account that pays 6%. How much will John have on deposit at the end of 20 years?

Consolidated Freightways is financing a new truck with a loan of $60,000 to be repaid in six annual end-of-year installments of $13,375. What annual interest rate is Consolidated Freightways paying?

George makes annual end-of-year payments of $5,043.71 on a four-year loan with an interest rate of 13 percent. The original principal amount was

The basic future and present value equations contain four variables. Which one of the following is not included?