Exam 5: The Time Value of Money

On the day you retire you have $1,000,000 saved.You expect to live another 25 years during which time you expect to earn 6.19% on your savings while inflation averages 2.5% annually.Assume you want to spend the same amount each year in real terms and die on the day you spend your last dime.What real amount will you be able to spend each year?

An annuity due must have a present value at least as large as an equivalent ordinary annuity.

A credit card account that charges interest at the rate of 1.25% per month would have an annually compounded rate of _____ and an APR of ____.

An annuity factor represents the future value of $1 that is deposited today.

What is the present value of a five-period annuity of $3,000 if the interest rate per period is 12% and the first payment is made today?

What is the effective annual interest rate on a 9% APR automobile loan that has monthly payments?

A loan officer states, "Thousands of dollars can be saved by switching to a 15-year mortgage from a 30-year mortgage." Calculate the difference in payments on a 30-year mortgage at 9% interest versus a 15-year mortgage with 8.5% interest.Both mortgages are for $100,000 and have monthly payments.What is the difference in total dollars that will be paid to the lender under each loan? (Round the monthly payment amounts to 2 decimal places.Both interest rates are compounded monthly.)

What will be the approximate population of the Canada, if its current population of 35 million grows at a compound rate of 2% annually for 25 years?

An effective annual rate must be greater than an annual percentage rate.

When money is invested at compound interest, the growth rate is the interest rate.

The Excel function for future value is FV (rate, nper, pmt, PV).

How much more is a perpetuity of $1,000 worth than an annuity of the same amount for 20 years? Assume an interest rate of 10% and cash flows at the end of each period.

The present value of a perpetuity can be determined by:

Nominal dollars refer to the amount of purchasing power.

A cash-strapped young professional offers to buy your car with four, equal end of year annual payments of $3,000, beginning 2 years from today (the first payment will be made on the last day of year 2).Assuming you're indifferent to cash versus credit, that you can invest at 10%, and that you want to receive $9,000 for the car, should you accept?

In calculating the present value of $1,000 to be received 5 years from today, the discount factor has been calculated to be.7008.What is the apparent interest rate?

Would you prefer a savings account that paid 7% interest compounded quarterly, 6.8% compounded monthly, 7.2% compounded weekly, or an account that paid 7.5% with annual compounding?

How much more would you be willing to pay today for an investment offering $10,000 in 4 years rather than in 5 years? Your discount rate is 8%.

How much interest can be accumulated during one year on a $1,000 deposit paying continuously compounded interest at an APR of 10%?

$50,000 is borrowed, to be repaid in three equal, annual payments with 10% interest.Approximately how much principal is amortized with the first payment?