Exam 6: Time Value of Money

The present value of five uneven cash flows is $2,145. At a nominal rate of 10% compounded annually, what is the fifth payment if payment one is $500, payment two is $600, and payments three and four are $400?

Calculate the amount to be received at the end of year 1 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%.

Finding the discounted value of $1,000 to be received at the end of each of the next five years requires calculating the:

The Millers have decided to deposit $10,000 a year into a savings account for their daughter's college education. She is now five years old.   How much will their daughter have for college at age 18 if the account earns 8%?

You have borrowed $130,000 to buy a new motor home. Your loan is to be repaid over 15 years at 8% compounded monthly Calculate the principal paid to the bank in month 2 of the loan.

Joe Brady just won a $450,000 lottery in Pennsylvania. Instead of receiving a lump sum, he found that he would receive $22,500 annually (end of year)for 20 years. Joe is 75 years old and wants his money now. He has been offered $140,827 to sell his ticket. What rate of return is the buyer expecting to make if Joe accepts the offer?

In six years, your daughter will be going to college. You wish to have a fund that will provide her with $10,000 at the end of each of her four years in college. How much must you deposit today if the money will earn 10 percent in each of the 10 years?

If Susan and Joe set aside $10,000 for college tuition when their daughter is 13, how much will be available when she starts college at 18 if the account in which the money is deposited pays 12 percent compounded monthly?

The future value factor for an annuity of n periods can be obtained by adding the future value factors for amounts for 1 through n periods.

Joan is saving to open her own dress shop in 10 years. She currently has $10,000. In addition, she plans to save $2,000 per year for the next 5 years and $3,000 per year for the following 5 years. How much will Joan have in 10 years if she earns a 10 % return on her savings?

Present value calculations assume that an investor always prefers an investment's present value to its future cash flows.

After watching "Who Wants to Be a Millionaire," you have decided you want to join the millionaire's club. Your goal is to have $1,000,000 in 35 years. If you can invest in a mutual fund that you project will earn a 10% return, how much must you invest each year to meet your goal? (Round to nearest $)

Columbia Bank & Trust has just given you a $20,000 term loan to pay for a new concrete mixer. The loan requires five equal annual end of the year payments. If the loan provides the bank with a 12 percent return, what will be your annual payments?

John is 25 years old and wishes to retire in 30 years. His plan is to invest in a mutual fund earning a 12 percent annual return and have a $1 million retirement fund at age 55. How much must he invest at the end of each year to achieve this goal?

A $300,000.00 thirty year mortgage has a monthly payment of $1,798.65. Over the life of the mortgage, how much money do you pay in interest?

A steady stream of earnings is:

The Florida lottery agrees to pay the winner $250,000 at the end of each year for the next 20 years. What is the future value of this prize if each payment is put in an account earning 9 percent?

Holding all other variables constant, an increase in the discount rate would increase a present value.

Cosmos Touring wishes to replace its luxury bus in 10 years by accumulating funds in a special account. The new bus is expected to cost $180,000. How much must Cosmos put into the fund in equal, end-of-year amounts if earnings are expected to be 8% for the first 4 years and 10% thereafter?

If you deposit $250 each quarter in a bank account that pays interest at 16% compounded quarterly, how much will you have at the end of five years?