Exam 9: Time Value of Money

Your current bank is paying 6.25% simple interest rate.You can move your savings account to Harris Bank that pays 6.25% compounded annually or to First Chicago bank paying 6% compounded semi-annually.To maximize your return you would choose:

The future value of $200 received today and deposited for three years in an account which pays semiannual interest of 8 percent is ________.

Anders was given a gold coin originally purchased for $1 by his great-grandfather 50 years ago.Today the coin is worth $450.The rate of return realized on the sale of this coin is approximately equal to

The interest rate determined by multiplying the interest rate charged per period by the number of periods in a year is called the:

The method of calculating interest on a loan that is set by law is called the:

The values of stocks and bonds are not affected by time value of money concepts.

As the interest rate increases,present value decreases.

Ken purchases a perpetual investment that pays $90 per year indefinitely,beginning one year from today.What is price of the investment if the current discount rate is 7.6%?

An annuity is a series of equal payments that occur over a number of time periods.

The present value of a $100 deposit in 10 years at 10% is $38.55.

For positive interest rates,the future value interest factor is

Christine has just purchased a used Mercedes for $18,995.She plans to make a $2,500 down payment on the new car.What is the amount of her monthly payment on the remaining loan if she must pay 12% annual interest on a 24-month car loan?

The interest portion increases and the principal portion decreases over time under a typical loan amortization schedule.

The annual percentage rate (APR)overstates the true or effective interest cost.

The method of calculating the annual percentage rate (APR)is set by law.

When the amount earned on a deposit has become part of the principal at the end of a specified time period the concept is called

Discounting is an arithmetic process whereby a future value decreases at a compound interest rate over time to reach a present value.

Which of the following statements is false?

The present value of $1,000 received at the end of year 1,$1,200 received at the end of year 2,and $1,300 received at the end of year 3,assuming an opportunity cost of 7 percent,is

You borrow $10,000 to pay for your college tuition.The loan is amortized over a three-year period with an interest rate of 18%.What is your remaining balance at the end of year two?