Exam 9: The Time Value of Money

Increasing the number of periods will increase all of the following except

The interest factor for the future value of an annuity is simply the sum of the interest factors for the future value using the same number of periods.

Dr. Stein has just invested $10,000 for his son (age 7). The money will be used for his son's education 10 years from now. He calculates that he will need $21,598 for his son's education by the time the boy goes to school. What rate of return will Dr. Stein need to achieve this goal? Choose the closest answer.

Discounted at 6%, $1,000 received three years from now is worth less than $800 received today. PV = FV × PV_IF (App B: 3 periods, 6%) = $1,000 × .840 = $840

As the interest rate increases, the present value

John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 10 equal annual payments. What are John's annual payment amounts?

After 10 years, some shares of stock originally purchased for $500 total were sold for $900 total. What was the yield on the investment? Choose the closest answer.

Babe Ruth Jr. has agreed to play for the Cleveland Indians for $3 million per year for the next 10 years. What table would you use to calculate the value of this contract in today's dollars?

The time value of money concept is fundamental to the analysis of cash inflow and outflow decisions covering multiple periods of time.

Time value of money considers which of the following item(s) that change the value of money?

A company wants to find the yield on an investment that requires a certain amount today in which then returns a single amount some time in the future. Which time value of money table would the company use?

A major disadvantage to time value of money is that is only considers one item that changes the value of the dollar such as interest.

As the discount rate becomes higher and higher, the present value of inflows approaches

The time value of money is not a useful concept in determining the value of a bond or in capital investment decisions.

Mr. Fish wants to build a house in ten years. He estimates that the total cost will be $150,000. If he can put aside $10,000 at the end of each year, what rate of return must he earn in order to have the amount needed?

Compounding more than once a year (semi-annually, quarterly, or monthly) will increase the interest rate and number of periods used in the calculations.

Time value of money can be calculated in a few different ways such as time value of money tables, calculator, and/or equation, which all come up with a very similar answer.

To save for her newborn son 's college education, Lea Wilson will invest $1,000 at the end of each year for the next 20 years. The interest rate is 10%. What is the future value?

If you invest $10,000 today at 10% interest, how much will you have in 10 years?

A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement, you will have $73,425. The plan anticipates earning 8% interest. Given the following information, how much will you be able to take out on an annual basis while you are retired?