Exam 6: Time Value of Money

Many IRA funds argue that investors should invest at the beginning of the year rather than at the end. What is the difference to an investor who invests $2,000 per year at 11 percent over a 30-year period?

Your firm, New Sunrise, has just leased a $28,000 BMW for you. The lease requires six beginning of the year payments that will fully amortize the cost of the car. How much are the payments if the interest rate is 12 percent?

Six years ago you paid $20 per share for 100 shares of stock. Today you sold the 100 shares for $30 per share. Determine the average annual rate of return on your investment, assuming the stock paid no dividends.

Find the present value of a perpetuity of $1,500 per year, given a 20% opportunity cost.

Which of the following cash flows is equivalent to receiving $125.00 today assuming a 9% annual discount rate?

Compounding periods theoretically:

What present amount is equivalent to $100 received at the end of each year for 8 years, given an opportunity cost of 20%?

You are considering buying a new car. The sticker price is $15,000 and you have $2,000 to put toward a down payment. If you can negotiate a nominal annual interest rate of 10% and you wish to pay for the car over a 5-year period, what are your monthly car payments?

If you deposit $3500 in a bank account paying 6% interest and leave it there for fifteen years, how much will you have?

The opportunity cost of using a resource in some way, is the amount the resource could earn if used in an alternative way.

Present value factors for amounts are reciprocals of future value factors for amounts.

A $300,000.00 thirty year mortgage has a monthly payment of $1,798.65. Assuming a mortgage rate of 6% APR, how much interest is due on the first mortgage payment?

What is the rate of interest on a $10,000 loan that is to be repaid in 10 equal annual installments of $1,917.

How much will you have to save each month to have $6,000 in two years if the interest rate is 18% compounded monthly?

Jim Dolt wants to borrow $50,000 to buy a house. If he paid equal annual installments for 30 years and 12 percent interest on the outstanding balance, what would be the amount of his annual payment?

You have just borrowed $30,000 to buy a new car. The loan agreement calls for 48 monthly payments of $704.55 each to begin one month from today. If the interest is compounded monthly, then what is the effective annual rate (EAR)on this loan?

An amortized or installment loan represents an annuity whose cash flows consist of the loan payments.

What is the future value of $1,000, placed in a saving account for four years if the account pays 8%, compounded quarterly?

An amortized loan is generally structured to provide constant payments each of which contains the same proportions of interest and principal repayment.

The payment or receipt of equal amounts, at the end of a series of equal periods, for a specified amount of time is called a(n):