Exam 5: The Time Value of Money

Your monthly statement from your bank credit card shows that the monthly rate of interest is 1.5%. What is the annual effective rate of interest you are being charged on your credit card?

When using a future value of an annuity table (e.g., Table III at the back of the book),

Why does an annuity due have a greater future value than a regular annuity - all things being equal?

Which of the following is worth more?

Sales for Triad Inc. have grown from $2 million to $8.092 million in 10 years. What is the implied growth rate of sales for Triad?

The process of finding present values is frequently called

When you purchased a car, you borrowed $20,000 from the bank and agreed to make monthly payments of $423.17 for 5 years. What rate of interest is the bank charging you?

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 the opportunity cost of funds is 14 percent.

Finding the discounted current value of $1,000 to be received at the end of each of the next 5 years requires calculating the

What is the present value of the following net cash flows if the discount rate is 10%?

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?

Based on the Rule of 72, what interest rate do you need to earn to double your money in 6 years?

The amount of simple interest is equal to the product of the principal times ____ times ____.

What is the net present value rule?

The more frequent the compounding the

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

You just purchased a new $25,000 car and agreed to pay for the car in 50 monthly payments. If the monthly interest rate is 1 percent, what is your total financing cost?

Many IRA funds argue that investors should invest at the beginning of the year rather than at the end. What is the difference to an investor who invests $2,000 per year at 11 percent over a 30 year period?

Your local bank offers 4-year certificates of deposit (CD) at a 12 percent annual nominal interest rate compounded quarterly. Determine how much additional interest you will earn over 4 years on a $10,000 CD that is compounded quarterly compared with one that is compounded annually.

What is the present value of the following mixed cash flow stream if interest is 6% (rounded)?