Exam 6: Time Value of Money

An annuity with $1,000 annual payments at the end of each year, with a 10% interest rate, is worth how much at the end of four years?

The Good Fairy has offered to give you $1,000,000 in 20 years. Because of your incredulity, the GF has volunteered to deposit the present value of the $1,000,000 in a trust managed by a bank or insurance company of your choice. How much must the GF deposit if the investment earns 5 percent? 10 percent?

A share of preferred stock pays a $2.00 quarterly dividend. Comparable investments should earn 8% compounded quarterly. The preferred should sell for $100.

The term k_nom represents the effective annual rate of interest.

Mr. Moore is 35 years old today and is beginning to plan for his retirement. He wants to set aside an equal amount at the end of each of the next 25 years so that he can retire at age 60. He expects to live to about 80, and wants to be able to withdraw $25,000 per year from the account on his 61st through 80th birthdays. The account is expected to earn 10 percent per annum for the entire period of time. Determine the size of the annual deposits that must be made by Mr. Moore.

A four-year annuity of $1,000 annual payments at the beginning of each year, with a 10% interest rate is worth how much today?

A sinking fund provides cash to pay off a stock's principal at maturity.

The discounted value of a sum is its:

Mary Rodriguez is borrowing $50,000 to buy a home. If she pays equal annual installments for 30 years and 8 percent interest on the outstanding balance, what is the amount of her annual payment?

Becky is planning to take out a mortgage for $350,000 for 30 years at 8% compounded monthly.   What is the total amount that she will pay the bank?

Which of the following interest rates will come closest to doubling invested money in five years?

The importance of the timing of future payments is positively related to the interest rate.

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

The present value of a future amount is:

At the appropriate interest rate people are indifferent between the present and future values of a sum of money.

Becky is planning to take out a mortgage for $350,000 for 30 years at 4% compounded monthly. How much interest will she pay the bank over the life of the loan?

A contract guarantees payment of $500 a month for the next 18 months starting today . How much is that contract worth today if the interest rate is 12% compounded monthly?

If an investor is indifferent between $1.00 today and $1.33 in three years:

The present value of the cash flows that come from an investment is the minimum price an investor should be willing to pay for the investment.

While the present value of an amount is decreased by an increase in the frequency of compounding, the present value of an annuity is increased.