Exam 11: Time Value of Money

Vladimir Boscak invested $35,000 on March 1,2009,and in return he received a total of $39,600,which he collected on March 1,2010.The rate of return on Vladimir's investment was:

A summary measure of an investment's projected performance based on the possible rates of return and the likelihood of those rates of return occurring is called:

If compounding is changed from an annual to a semiannual basis,what happens to future value and present value? Future value Present value

What if the present value of $2,000 received nine years from today,assuming an interest rate of 8% compounded semiannually?

Champion Contractors Corp is trying to decide which of two machines to buy.The price of the machines and their respective cash flows are described below.The decision to buy is based on which of the two machines produces the largest rate of return.Given the information below which of the machines should Champion buy? Machine A: Cost $130,000 and will produce $36,063.27 each year for 5 years Machine B: Cost $125,000 and will produce $16,188.07 every 6 months for 5 years (10 pmts).

If someone offered to give you a $500,000 noninterest-bearing note that was due 5 years from today (you will receive only one $500,000 payment three years from today)how much would you loan them if you wanted to earn an 6% annual interest rate that is compounded semiannually?

You are going to put $4,000 into a savings account every six months starting Sept 1,2010 and ending on March 1,2014.How much will be in the savings account on March 1,2014 if you can earn a 6% annual rate?

What is the difference in the future value of $10,000 in 5 years if it is invested at 7% simple interest or invested at 7% compounded semiannually?

Southland,Inc.has just borrowed $50,000 to purchase a delivery truck.The contract calls for 4 annual payments of $15,773.54,beginning one year from today.The annual interest rate Southland is paying equals:

Casey Cohen would like to have $24,500 in 5 years time to buy a car.The amount that Cohen would have to invest today,assuming an interest rate of 4% compounded annually,in order to reach his goal is:

The rate of return is calculated as:

Tanya Wagner plans to make annual deposits of $7,674.36 until she has accumulated $50,000.Assuming she earns 7% on her investment,Wagner will need to make a total of:

Explain the relationship between an expected rate of return on an investment and the actual return that will actually occur.Explain the role expected return plays in investment decisions.

How much must you invest today to receive ten,$6,000 payments every 3 months (quarterly)if you can earn 10% annual interest?

On July 1,2010,a customer has agreed to make six,$2,000 quarterly cash payments staring October 1,2010 and $6,000 on July 1,2013 in exchange for a piece of equipment that cost you $12,000.If the annual interest rate is 8% and the how much profit did you earn on the sale of the equipment?

Johnstone Supply Company has $100,000 to invest.Determine the amount of money Johnstone will have at the end of 5 years in each of the following independent situations: ( A)Johnstone invests the $100,000 to earn 7% interest compounded annually. (b)Johnstone invests the $100,000 to earn 6% compounded semiannually. (c)Johnstone invests the $100,000 to earn 4% compounded quarterly.

If $18,000 was invested at 10% interest compounded semiannually,and it grew to be $32,326.20,the number of years the money was invested totaled:

You are trying to decide between leasing a car or buying it.In each case you would have the use of the car for 48 months.At the end of that time,you expect the car to be worth $6,000.Explain how to determine whether leasing or buying is the best for you.

The present value on January 1,2010 of 8 annual payments of $7,500 each with the first payment to be made on January 1,2011,assuming a 9% interest rate is: