Exam 5: The Time Value of Money

The appropriate manner of adjusting for inflationary effects is to discount nominal cash flows with real interest rates.

A car dealer offers payments of $522.59 per month for 48 months on a $25,000 car after making a $4,000 down payment.What is the loan's APR?

Any sequence of equally spaced,level cash flows is called an annuity.An annuity is also known as a perpetuity.

A credit card account that charges interest at the rate of 1.25% per month would have an annually compounded rate of _______ and an APR of _______.

If 4 years of college are expected to cost $150,000 18 years from now,how much must be deposited now into an account that will average 8% annually in order to save the $150,000? By how much would your answer change if you expected 11% annually?

Why is it difficult and perhaps risky to evaluate financial projects based on APR alone?

An interest rate that has been annualized using compound interest is termed the:

Cash flows occurring in different periods should not be compared unless:

What is the present value of the following payment stream,discounted at 8% annually: $1,000 at the end of year 1,$2,000 at the end of year 2,and $3,000 at the end of year 3?

What APR is being earned on a deposit of $5,000 made 10 years ago today if the deposit is worth $9,948.94 today? The deposit pays interest semiannually.

A dollar tomorrow is worth more than a dollar today.

In 2004 there was widespread dismay as the price of unleaded gasoline climbed to $2.03 a gallon.Motorists looked back longingly to 20 years earlier when they were paying just $1.19 a gallon.But how much had the real price of gasoline changed over this period,if the consumer price index was 1.81 times itself in 1984?

An amortizing loan is one in which:

How much interest can be accumulated during one year on a $1,000 deposit paying continuously compounded interest at an APR of 10%?

Show numerically that a savings account with a current balance of $1,000 that earns interest at 9% annually is precisely sufficient to make the payments on a 3-year loan of $1,000 that carries equal annual payments at 9% interest.

What is the relationship between an annually compounded rate and the annual percentage rate (APR)which is calculated for truth-in-lending laws for a loan requiring monthly payments?

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

How much will accumulate in an account with an initial deposit of $100,and which earns 10% interest compounded quarterly for 3 years?

If inflation in Wonderland averaged about 20% per month in 2000,what was the approximate annual inflation rate?

Some home loans involve "points," which are fees charged by the lender.Each point charged means that the borrower must pay 1% of the loan amount as a fee.For example,if 0.5 point is charged on a $100,000 loan,the loan repayment schedule is calculated on the $100,000 loan,but the net amount the borrower receives is only $99,500.What is the effective annual interest rate charged on such a loan,assuming that loan repayment occurs over 360 months,and that the interest rate is 1% per month?