Exam 5: Time Value of Money

Amir has obtained a $250,000 mortgage.The mortgage is amortized over 25 years and the term of the mortgage is five years.The mortgage interest rate is 9% compounded semi-annually.Amir will begin making monthly payments at the end of the month.Amir's monthly payment will be approximately

You won the lottery and you were asked to choose between the following two options: $\bullet$ Get $1,000 every week forever. $\bullet$ Get $1,000,000 in a lump sum. You expect to earn an effective annual rate of 4% on your investments.Assuming there is no risk between the two, which option do you prefer?

Consider two investments: PDQ and XPD.Each investment pays interest at the end of each year and the interest rate does not change over time.The interest earned each year is given below: Which of the following statements is most correct?

Ingrid has invested $10,000 in a Guaranteed Investment Certificate that promises her 12% per year for the first 5 years and 4% per year for the next 10 years.The interest is compounded annually.At the end of the 15 years, the value of the investment will be closest to which value? (Round your answer to two decimals.)

As interest rates rise, future values

Explain why the interest rates publicized by credit card companies do not reflect the real cost of borrowing incurred on the charges to these cards.

You have currently accumulated $50,000 thus far for your retirement, and are planning to have $1,000,000 in 30 years when you retire.If you can add $6,000 each year to your retirement fund, what interest rate do you need to have in order to achieve your retirement goal?

Which one of the following will increase the present value of an annuity?

How much should a monthly compounded account with an EAR of 10% earn semi-annually?

Your credit card has a quoted rate of 17% compounded weekly.What is the effective annual rate?

An investment pays $2,000 every month for 2 years.Your opportunity cost is 10% compounded annually.The present value of this investment is approximately

The R&M Bank currently offers an investment account with an interest rate of 6% compounded monthly.R&M wants to offer customers another account with interest compounded quarterly.If R&M wants the effective rates to be equal, what interest rate should R&M quote for the second account?

Elvira is considering buying a 20-year ordinary annuity to provide her with retirement income.The annuity will make annual payments of $25,000.If her opportunity cost is 7%, what is the maximum Elvira should pay for the annuity?

Montreal Financial Services Company offers a perpetuity of $5,000 per year with the first payment made one year from year.If your opportunity cost is 8% compounded annually, the present value of the perpetuity today is

Valentino will receive $25,000 in 3 years.His opportunity cost is 8% compounded continuously.The present value of this cash flow is closest to

At the age of 65 your grandfather decides to retire and use the money he saved in his RRSPs.He decided to get a fixed amount every quarter starting the day he retires.What type of payment is this?

The following four different financing schemes have been offered to you for the purchase of a $30,000 car.Which one should you choose?

The interest earned on both the original investment and the accumulated interest, over time is called

The R&M Bank currently offers an investment account with an interest rate of 8% compounded semi-annually.R&M wants to offer customers another account with interest compounded monthly.If R&M wants the effective rates to be equal, what interest rate should R&M quote for the second account?

You invested $2,000 at 5.0% compounded annually.What is the value of the investment in five years? (Round your answer to two decimals.)