Exam 4: The Time Value of Money Part 2

What is the present value today of an ordinary annuity cash flow of $4,000 per year for thirty years at an interest rate of 6.0% per year if the first cash flow is six years from today?

The last interest payment on a 12-year,6%,$138,000,fully-amortized loan with annual payments will be less than the first interest payment.

Assume that you are 23 years old and that you place $3,000 year-end deposits each year into a stock index fund that earns an average of 9.5% per year for the next 17 years.How much money will be in the account at the end of 17 years? How much money will you have in the account 15 years later at age 55 if the account continues to earn 9.5% per year but you discontinue making new contributions? How much money would you have at the end of 17 years if you had made the same number of deposits but at the beginning of the year instead of at the end of the year? How much money will you have in the account 15 years later at age 55 if the account continues to earn 9.5% per year but you discontinued making new contributions?

You dream of endowing a chair in finance at the local university that will provide a salary of $250,000 per year forever,with the first cash flow to be one year from today.If the university promises to invest the money at a rate of 4% per year,how much money must you give the university today to make your dream a reality?

Which of the following is NOT true with regard to an amortization table?

Amortization tables are useful for each of the following reasons EXCEPT ________.

A British consol bond can be considered a type of perpetuity.

At what interest rate would you be indifferent to a lottery payout today of $2,229,389.17,or 25 equal annual end-of-the-year payouts of $200,000?

Home mortgage loans are commonly paid off by making equal monthly payments consisting of both interest and principal.This is an example of an amortized loan.

Your firm intends to finance the purchase of a new construction crane.The cost is $2,500,000.How large is the payment at the end of year ten if the crane is financed at a rate of 7.50% as a discount loan?

You have a choice among three types of loan and wish to pay the LEAST total cash flows.An amortized loan will result in fewer dollars paid out than a discount or an interest-only loan for the same amount,positive interest rate,and time period.

Given the following cash flows,what is the future value at year ten when compounded at an interest rate of 4.0%? Year 7 8 9 10 Cash Flow \ 4,000 \ 3,000 \ 2,000 \ 1,000

You have just turned 27 and may now spend a portion of the trust fund your parents established for you.The terms of the trust fund allow you to withdraw 50 beginning-of-the-year cash flows of $40,000 each.An investment firm has offered to pay you cash for all of the fund today.If the rate they use to discount the cash flows is 14% per year,what is their offer price today for your pension fund?

What type of loan makes interest payments throughout the life of the loan and then pays the principal and final interest payment at the maturity date?

Autorola plans to invest $5,000 per year in equal end-of-the-year amounts at an interest rate of 6% compounded annually.How much will the firm have at the end of four years?

You have won the lottery and received a check for $1,275,156 today.You invest the lottery check today at an annual interest rate of 8% and allow it to build for a full ten years.At that point in time,you shift the money to an account paying only 6% per year.You plan to spend $175,000 per year in retirement (assume equal annual end-of-the-year cash flows)for 30 years,and your first retirement cash flow is exactly eleven years from today.Will you have enough money to fully fund your desired retirement? Use a calculator to determine your answer.

The future value three years from today of a $200 three-year annuity due compounded at a rate of 10% is equal to ________.

Which of the following is NOT true regarding the total payment in an equal payment amortization table?

Which of the following is NOT an example of annuity cash flows?

On your first through fifth birthdays your parents placed $2,000 into your college fund (five total deposits of $2,000 each).The account has earned an average of 8.5% per year until today,your twenty-first birthday.How much money is in the account today?