Exam 5: Time Value of Money 2: Analyzing Annuity Cash Flows

The interest on your home mortgage is tax deductible. Why are the early years of the mortgage more helpful in reducing taxes than the later years?

Present Value Given a 5 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,400, $1,400, and $1,500.

You are deciding among several different bank accounts. Which of the following will generate the highest effective annual rate (EAR)?

What is the future value of a $500 annuity payment over 8 years if interest rates are 14%?

Annuity Interest Rate What's the interest rate of a 6-year, annual $3,000 annuity with present value of $14,000?

Consider that you are 30 years old and have just changed to a new job. You have $91,000 in the retirement plan from your former employer. You can roll that money into the retirement plan of the new employer. You will also contribute $4,800 each year into your new employer's plan. If the rolled-over money and the new contributions both earn a 7% return, how much should you expect to have when you retire in 38 years?

Present Value of a Perpetuity A perpetuity pays $100 per year and interest rates are 6.5 percent. How much would its value change if interest rates increased to 9 percent?

Loan Payments You wish to buy a $20,000 car. The dealer offers you a 5-year loan with an 8 percent APR. What are the monthly payments?

Bank A charges a 7.75% annual percentage rate and interest is due at the end of the year. Bank B charges a 7% annual percentage rate and interest must be paid monthly. What is the effective annual rate charged by each bank?

The length of time of the annuity is very important in accumulating wealth within an annuity. What other factor also has this effect?

Many people who want to start investing for their future want to start today which implies an annuity stream that is paid at the beginning of the period. Beginning-of-period cash flows are referred to as

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 6% interest rate, what are the monthly payments?

Future Value of an Annuity Due If the future value of an ordinary, 7-year annuity is $10,000 and interest rates are 4 percent, what's the future value of the same annuity due?

Assume that you contribute $300 per month to a retirement plan for 25 years. Then you are able to increase the contribution to $500 per month for 20 years. Given a 9% interest rate, what is the value of your retirement plan after 45 years?

When computing the future value of an annuity, the higher the compound frequency,

Effective Annual Rate A loan is offered with monthly payments and a 10 percent APR. What's the loan's effective annual rate (EAR)?

You have reviewed your budget and determine that the most you can afford on a car loan is $375 per month. What is the most you can borrow if interest rates are 8% and you can pay the loan over 5 years?

What is the difference between an annuity due and an ordinary annuity?

Investing for Retirement Ross has decided that he wants to build enough retirement wealth that, if invested at 6 percent per year, will provide him with $2,500 monthly income for 30 years. To date, he has saved nothing, but he still has 20 years until he retires. How much money does he need to contribute per month to reach his goal?

Future Value Given a 6 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,200, $1,400, $1,400, and $1,500.