Exam 5: Time Value of Money

An equal-payment mortgage is calculated using the interest on the remaining balance of the capital every month, whereas interest paid on a line of credit is deducted from your account every month.So, mortgage payments are calculated using ______ where line of credit interest is calculated using ______.

You invested $2,000 at 5% compounded annually.Determine how much interest was earned in the fifth year.(Round your answer to two decimals.)

Lucy has just obtained a five-year fixed-rate mortgage to buy her first home.The mortgage is amortized over 30 years.Which of the following statements is most correct?

When comparing different investment opportunities (each with the same risk)with different interest rates reported in different ways you should

ABC Bank pays 2% simple interest annually on an investment of $10,000.What is the interest earned in the fifth year?

Lottery A pays $1,000 today and Lottery B pays $1,750 at the end of five years.If the discount rate is 5%, which lottery should you choose

The current interest rate is 3.04%.If the interest rate increases by 10 basis points, the new interest rate will be (Round your answer to two decimals.)

As the term of a mortgage increases, holding interest rates constant, the monthly payments will

Marie is considering investing a part of her future income in an investment account that offers 0.5% a month.She will start work in 6 months and her contract extends for 2 years.If the investment amount is $300 a month, what is the present value of this investment?

Your mother has just retired.The balance in her investment account is $600,000 and she wants to receive monthly payments of $5,000.If she receives the payments at the end of the month, and the current interest rate is 7%, compounded quarterly, how many months will her investment account last for approximately?

Amir has obtained a $250,000 mortgage.The mortgage is amortized over 25 years and the term of the mortgage is 25 years.The mortgage interest rate is 9% compounded annually.Amir will begin making annual payments of $25,451.56 at the end of the year.What is the principal outstanding immediately after Amir makes his third payment?

You have received two job offers: ABC is offering to pay you $5,000 at the end of each month for five years and then $8,000 at the end of each month for the next five years. PQR is offering you $2,500 twice a month for the first five years and then $4,000 twice a month for the next five years. If your decision is based solely on money, which job offer do you prefer? Why? Note: no calculations are necessary.

Montreal Financial Services Company offers a perpetuity of $50,000 per year with the first payment on January 1 next year.If your opportunity costs are constant over time, the price you are willing to pay for this perpetuity ______ over time.

In 30 years, you plan to set up a fellowship fund for your university that pays out $100,000 each year in perpetuity with an annually compounded discount rate of 5%.In order to set up the fund in 30 years, how much do you need to save each year (starting at the end of this year)assuming you can get a semi-annually compounded return of 10% on your savings for the next 30 years?

As the amortization period of a mortgage increases, holding interest rates constant, the monthly payments will

You have just obtained a $150,000 10-year 6% fixed-rate mortgage.The mortgage is amortized over 25 years.The interest rate is compounded semi-annually and you make monthly payments at the end of each month. Immediately after you signed the paperwork, mortgage rates dropped to 5%.Your bank has offered you the opportunity to renegotiate the mortgage for a penalty of $10,000.Should you take this opportunity? Assume your opportunity cost equals the mortgage rate.

Xiang invests $25,000 per year, starting today, for 20 years at an interest rate of 7%.What is the value of the investment at the end of the 20 years?

Felix has been offered a three-year ordinary annuity with annual payments of $1,500.The current price to purchase this annuity is $2,700.Which of the following is the most appropriate timeline for this investment?

Franklin needs to have $1,000 in 8 years.If his investment earns 5% compounded annually, how much must he invest today to achieve his goal? (Round your answer to two decimals.)

To compare interest rates, we should compare the