Exam 5: The Time Value of Money

A mortgage loan is an example of an amortizing loan."Amortizing" means that part of the monthly payment is used to pay interest on the loan and part is used to reduce the amount of the loan.

An annuity factor represents the future value of $1 that is deposited today.

How much more would you be willing to pay today for an investment offering $10,000 in 4 years rather than in 5 years? Your discount rate is 8%.

What is the minimum nominal rate of return that you should accept if you require a 4% real rate of return and the rate of inflation is expected to average 3.5% during the investment period?

How many monthly payments remain to be paid on an 8% compounded monthly mortgage with a 30-year amortization and monthly payments of $733.76,when the balance reaches one-half of the $100,000 mortgage?

What factor is fixed if you establish a scholarship fund in perpetuity?

A dollar tomorrow is worth more than a dollar today.

A perpetuity is a special form of an annuity.

An annual percentage rate (APR)is determined by annualizing the rate using compound interest.

In calculating the present value of $1,000 to be received 5 years from today,the discount factor has been calculated to be .7008.What is the apparent interest rate?

The concept of compound interest refers to:

Miller's Hardware plans on saving $42,000,$54,000,and $58,000 at the end of each year for the next three years,respectively.How much will the firm have saved at the end of the three years if it can earn 4.5% by reinvesting its saving?

How long must one wait (to the nearest year)for an initial investment of $1,000 to triple in value if the investment earns 8% compounded annually?

If inflation in Wonderland averaged about 3% per month in 2013,what was the annual rate of inflation?

Eighteen years from now,4 years of college are expected to cost $150,000.How much more must be deposited into an account today to fund this expense if you could only earn 8% rather than the 11% you had hoped to earn on your savings?

Approximately how much must be saved for retirement in order to withdraw $100,000 per year for the next 25 years if the balance earns 8% annually,and the first payment occurs one year from now?

Assume your uncle recorded his salary history during a 40-year career and found that it had increased 10-fold.If inflation averaged 4% annually during the period,then over his career his purchasing power:

You should never compare cash flows occurring at different times without first discounting them to a common date.

Assume the total expense for your current year in college equals $20,000.How much would your parents have needed to invest 21 years ago in an account paying 8% compounded annually to cover this amount?

You're ready to make the last of four equal,annual payments on a $1,000 loan with a 10% interest rate.If the amount of the payment is $315.47,how much of that payment is accrued interest?