Exam 6: Time Value of Money

Find the future value in two years of $100 that is deposited in an account, which pays 12%, compounded monthly.

You have just won a lottery that promises to pay you and your heirs $1000 dollars a year forever . How much could you get for this stream of cash today if the interest rate is 6%?

What are the payments on a $12,500, four-year bank loan at 12% compounded monthly?

If you invest money at 8% compounded monthly, what Effective Annual Rate (EAR)are you receiving?

Roy, who has just turned 40, would like to have an annual annuity of $20,000 paid over a 20-year period, the first payment occurring on his 66th birthday. How much must Roy save each year (end of year)for the next 25 years to have this annuity, if the investment will earn 12 percent compounded annually?

The Summer Breeze Hotel borrowed $100,000 from the Meadowlands Bank to pay for a new air conditioning system. The loan is for a period of 5 years at an interest rate of 10% and requires 5 equal end-of-year payments that include both principal and interest on the outstanding balance. What will be the outstanding balance after the third payment?

A bank has agreed to loan you $10,000 at 11% for 5 years. You are required to make equal, annual, end-of-year payments that include both principal and interest on the outstanding balance. Determine the amount of these annual payments (to the nearest dollar).

The principle behind time value of money is based on the fact that:

If a series of equal payments is paid regularly out of a bank account which earns a constant rate of interest, the ____ is the amount that must be in the bank at the beginning of the series to just fund all of the payments.

A perpetuity has a cash flow of $18.75 and a discount rate of 6%. What is the value of the perpetuity?

At an interest rate of 0%, $1.00 received in 10 years is equivalent to $1.00 received in 5 years.

You wish to have $10,000 per year as a retirement supplement for 20 years (from age 65-85). You are now 40 years old. How much must you save each year for the next 25 years if you assume your savings will earn 12% annually?

The time value of money means that a dollar today is worth more than a dollar at any time in the future.

If the present value of a given sum is equal to its future value, then:

Keith Stone has a 10-year-old daughter, Kate, who will be entering college in 8 years. Keith estimates college costs to be $16,000, $17,000, $18,000 and $19,000 payable at the beginning of each of Kate's four years in college. How much must Keith save each year (assume end of year payments)for each of the next 8 years to have enough savings to pay for Kate's education when she starts college? Assume Keith can earn 9% on his savings.

Peter recently purchased a new home with a25-year mortgage loan of $250,000 at 8% compounded monthly, What is the total amount of interest Peter will pay the bank over the life of the loan?

You want to purchase a boat that costs $40,000. You want to finance as much of the purchase as possible with a 5-year bank loan at 12% compounded monthly, but can only afford loan payments of $750 per month. How much will you need as a down payment to buy the boat? (Round to the nearest dollar)

The annual effective rate of interest is a function of:

​You have just deposited $5,000 into an account that pays 8% after taxes. If you make no additional contributions. How much more will your account be worth when you retire in 40 years than it would be if you waited 10 years before making this deposit?