Exam 3: The Time Value of Money Part 1

The dividends per share paid by Artisan Industries Inc.(AI)doubled from a starting value of $1.50 in 2010 to a value of $3.00 in 2016 (a six-year period).What was the approximate average annual rate of growth of AI's dividends per share? Use the Rule of 72 to determine your answer.

Which of the following is the CORRECT formula for calculating the future value?

Other things remaining equal,the price today and the growth rate are inversely related.

A two-year investment of $3500 is made today at an annual interest rate of 5.75%.Which of the following statements is TRUE?

Consider the TVM equation: A decrease in the interest rate will decrease the future value,other things remaining equal.

You wish to make a substantial down payment on a lake cottage and you currently have $15,725 invested at an annual rate of 2.50%.How much money will be in the account in 3.5 years if it continues to earn at its present rate?

A home improvement firm has quoted a price of $14,700 to fix up Eric's backyard.Five years ago,Eric put $12,500 into a home improvement account that has earned an average of 4.75% per year.Does Eric have enough money in his account to pay for the backyard fix-up?

Antonio made $18,000 in the first movie he ever starred in.He soon made more and more movies and more and more money.At a 46.18% rate of salary increase per movie,how many movies did he make in order to earn $5,350,000 in a single movie?

The financial aid office at your university has offered to pay your full annual tuition cost of $19,000 this year,as long as you maintain a grade point average of 3.00.If tuition costs rise at a rate of 8% per year while you are in college,but the financial aid office continues to pay exactly $19,000 per year for your tuition,how much out-of-pocket tuition costs will you have your senior year? NOTE: Think carefully about this problem when figuring the number of years from the start of your freshman year to the start of your senior year,assuming normal progress toward graduation in four years.Further,be aware that while tuition costs are rising your tuition is covered up to only $19,000.You must pay any excess tuition costs.

Susan and her spouse have saved $5,500 for a 12-day cruise vacation in Europe.The couple needs $6,500 for a "nice" cabin or $7,000 for a "luxury" cabin.If cabin prices are expected to remain constant for the next three years and Susan expects to earn 5% per year on her investments,will the couple's savings be enough to afford the "nice" cabin in three years? Can they afford the luxury cabin? Why or why not?

Amy has always planned to save enough money to pay cash for her first new car.If Amy increases the rate she earns on her savings,then she will have to save more money today to buy her car at the same date in the future.

$100 invested at a rate of 5% for 10 years has the same future value as $100 invested at 10% compounded annually for 5 years.

Given enough time,you could double your money with a risk-free investment.

You made your first $3,000 deposit today into a retirement account earning an average annual rate of 6%.How long will it take your deposit to reach a value of $50,000? How long will it take if instead you invest the money into an account earning 10% per year? After making your calculations,how does this information affect your decision-making regarding long-term investments?

Sam wishes to invest $8,000 into an account earning 6% compounded annually.If he invests the money today,how much will be in the account in 6 years? If he waits three years before investing his $8,000 and invests that money for three years,will he earn one-half of the interest earned in the first scenario since he had the same amount invested at the same rate but for only one-half of the time? Explain how you arrived at your answer.

Gasoline cost $.10 per gallon in 1930.Over the next 70 years,the price rose at an average rate of 4.00% per year.Based on this information,what was the average price of a gallon of gas in 1990?

Kirby Puckett became the first $3,000,000 man in major league baseball in 1990.By 2008,A-Rod was bringing in $27,500,000 per year.Did the annual change in the highest annual baseball salary rise more rapidly over this time period than from 1930 to 1990? Babe Ruth had the highest salary and made $80,000 in 1930.

You need $18,000 at the end of 4 years.If you can earn 0.325% per month,how much would you need to invest today to meet your objective?

The Johnstown School District had 3,171 students enrolled four years ago.Today,the district enrollment is 2,618 students.What has been the annual rate of change of student enrollment in the School District over this time period?

Which of the following actions will DECREASE the present value of an investment?