Exam 6: Time Value of Money

What is the most you should pay to receive the following cash flows if you require a return of 12 percent?

If $10,000 is received and deposited at 10% at the end of each of the next six years, how much will be in the account after the last payment is deposited?

Holding all other variables constant, an increase in the interest rate will cause ____ to decrease.

Designs Now is opening a showcase office to display and sell its computer designed poster art. Designs expects cash flows to be $120,000 in the first year, $180,000 in the second year, $240,000 in the third year. If Designs uses 11 percent as its discount rate, what is the present value of the cash flows?

The ____value of an imbedded annuity is moved back in time as an amount.

$3,947 deposited four years ago has grown to $5,000. What semiannually compounded rate of interest has the bank been paying?

You have borrowed $130,000 to buy a new motor home. Your loan is to be repaid over 15 years at 8% compounded monthly. If you pay an extra $200 per month on the motor home, how many years will it take to pay off the loan?

The effective rate of interest will always be ____ the nominal rate.

You want to purchase a beach house for $220,000 funding as much of the cost as possible with a home mortgage loan. Banks are currently offering standard thirty year mortgages at 8% (monthly compounding). Unfortunately, you can only afford payments of $1,500 per month. How much cash will you need for a down payment in order to buy the home? (Round to the nearest dollar)

A cash flow projected today for a specific period of time is a:

A business is expected to generate the following cash flows over the next five years after which it will be dissolved. How much is the business worth today if the interest rate is 8%?

You have just won a $5 million lottery to be received in twenty annual equal payments of $250,000. What will happen to the present value of your winnings if the interest rate increases?

Your brother, who is 6 years old, just received a trust fund that will be worth $25,000 when he is 21 years old. If the fund earns 10 percent interest compounded annually, what is the value of the fund today?

The present value of some expected future sum increases as the interest rate increases.

You estimate that you will owe $70,000 in student loans by the time you graduate. The interest rate is 6 percent compounded monthly. If you want to have this debt paid in full within 10 years, how much must you pay each month?

At a 0% interest the present value factor for an annuity is equal to the number of payments in the annuity.

Air Atlantic (AA)has been offered a 3-year old jet airliner under a 12-year lease arrangement. The lease requires AA to make annual lease payments of $500,000 at the beginning of each of the next 12 years. Determine the present value of the lease payments if AA's cost of funds is 14 percent.

An annuity due will have a smaller present value than a normal annuity.

You have just calculated the present value of the expected cash flows of a potential investment. Management thinks your figures are too low. Which of the following actions would increase the present value of your cash flows?

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