Exam 6: Time Value of Money

Alabama Power has preferred stock that pays an annual dividend of $9.44. If the security has no maturity, what is its value to an investor who wishes to obtain a 9 percent rate of return?

You deposited $2,000 seven years ago and haven't touched the account since. Now you have $3,656 in the bank. What was the interest rate?

How much must be invested today to have $1,000 in two years if the interest rate is 5%?

All streams of cash flows are called annuities.

If a series of equal payments is received regularly at the end of the year, and each is deposited immediately at the same interest rate, the ____ is the sum of all the payments and all the interest earned at the end of the series.

You currently have $600,000.00 in the bank and intend to withdrawal $60,000.00 from the account annually beginning next year. Assuming the account earns 10% annually, how long can you keep withdrawing $60,000.00 from the account?

Comet Powder Company has purchased a piece of equipment costing $100,000. It is expected to generate a 10-year stream of benefits amounting to $16,273 per year. Determine the rate of return Comet expects to earn from this equipment.

Your uncle promises to give you $550 per quarter for the next five years starting today . How much is his promise worth right now if the interest rate is 8% compounded quarterly?

What would you be willing to pay today to receive $5,000 at the end of each year for the next 10 years if interest is earned at a rate of 8% compounded annually?

If your parents put $2,000 a year into an IRA account for you in each of your last 4 teenage years (age 16,17,18, and 19), how much would the IRA account have in it at your retirement 45 years later if the account earned 12% each year? (Assume end-of-year payments.)

Calculate the amount today that is equivalent to $150 at the end of year 1, $450 at the end of year 2, and $300 at the end of year 3, given a discount rate of 10%.

Peter recently purchased a new home with a 25-year mortgage loan of $250,000 at 8% compounded monthly, What is the total amount Peter will pay the bank over the life of the loan?

If an 8-year annuity due has a Future Value (FV)of $10,000 and the interest rate is 7%, what is the amount of each annuity payment?

A stream of equal payments at regular time intervals that goes on forever is called a non-ending stream.

Assuming a 5% annual discount rate, what is the value of receiving $100.00 annual payments perpetually starting today?

FVF_k,n is always greater than 1, whereas PVF_k,n is always less than -1.

Both the timing and the amount of cash flows that come from an investment determine its desirability.

The present value of an annuity will be decreased by:

Idlewild Bank has granted you a seven year loan for $50,000. If your seven annual end of the year payments are $11,660.45, what is the rate of interest Idlewild is charging?