Exam 5: The Time Value of Money

You borrow $25,000 to be repaid in 12 monthly installments of $2,292.00.The annual interest rate is closest to

The present value of $1,000 to be received in 5 years is ________ if the discount rate is 12.78%.

Your daughter is born today and you want her to be a millionaire by the time she is 40 years old.open an investment account that promises to pay 11.5% per year.How much money must you deposit today so your daughter will have $1,000,000 by her 35th birthday?

D'Anthony borrowed $50,000 today that he must repay in 15 annual end-of-year installments of $5,000.What annual interest rate is D'Anthony paying on his loan?

You discover an antique in your attic that you purchased at an estate sale 10 years ago for $400.You auction it on eBay and receive $8,000 for your item.What annual rate of return did you earn?

A rational investor would prefer to receive $1,200 today rather than $100 per month for 12 months.

You are going to pay $100 into an account at the beginning of each of the next 40 years.At the beginning of the 41st year you buy a 30 year annuity whose first payment comes at the end of the 41st year (the accounts earn 12%).How much will you receive at the end of the 41st year (i.e.,the first annuity payment).Round to nearest $100.

Your company has received a $50,000 loan from an industrial finance company.The annual payments are $6,202.70.If the company is paying 9 percent interest per year,how many loan payments must the company make?

A deferred annuity will pay you $500 at the end of each year for 10 years,however the first payment will not be made until three years from today (payments will be made at the end of years 3 through 12).What amount will you have to deposit today to fund this deferred annuity? Use an 8% discount rate and round your answer to the nearest $100.

Assuming two investments have equal lives,a high discount rate tends to favor

If the interest rate is positive,a six-year ordinary annuity of $500 per year must have a present value over $3,000.

A compound annuity involves depositing or investing a single sum of money and allowing it to compound for a certain number of years.

Artificially low interest rates helped create the housing bubble because low interest rates (r value)create higher values (higher PVs).

Timelines are used for simple time value of money problems,but cannot be used for more complex problems.

Cary's wonderful parents established a college savings plan for him when he was born.They deposited $50 into the account on the last day of each month.The account has earned 10% compounded monthly,tax-free.Now he's off to State U.What equal amount can they withdraw beginning today (his 18th birthday)and each year for three additional years to spend on his education,assuming that the account now earns 7% annually.

Last National Bank is offering you a loan at 10%; payments on the loan are to be made monthly.Credit Onion is offering you a loan where payments are to be made semiannually; the rate on the loan is also 10%.Local Bank down the street is also offering a loan at 10% where the payments are made quarterly.Which loan has the lowest annual cost?

If the future value of annuity A is greater than the future value of annuity B,then the present value of annuity A must also be greater than the present value of annuity B.

Biff deposited $9,000 in a bank account,and 10 years later he closes out the account,which is worth $18,000.What annual rate of interest has he earned over the 10 years?

A financial analyst tells you that investing in stocks will allow you to double your money in 7 years.What annual rate of return is the analyst assuming you can earn?

The present value of an annuity increases as the discount rate increases.