Exam 4: The Time Value of Money Part 2

A never-ending stream of equal periodic, end-of-the-period cash flows is called a/an ________.

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.

The future value of a combination of positive and negative cash flows cannot be determined.

Autorola plans to invest $5,000 per year in equal annual 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?

The main variables of the TVM equation are

What type of loan requires both principal and interest payments as you go by making equal payments each period?

Even with an interest rate of 0.0%, the future value of a 5-year $800 annual annuity will be greater than the present value of the same annuity.

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 8.0% per year until today, your twentieth birthday. How much money is in the account today?

You have $50,000 invested in an account paying 3.50%. If you just finished paying your total college expenses for the coming year and your college costs $19,000 per year, how many years will your money last? (Treat your costs like an annuity with the first payment one year from today.) Use a financial calculator.

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

You sign a contract to pay back all of the interest and principal of a loan at the maturity date. This is an example of a discount loan.

You sign a contract to pay back all of the interest and principal of a loan at the maturity date. This is an example of an interest-only loan.

If you borrow $50,000 at an annual interest rate of 12% for six years, what is the annual payment (prior to maturity) on a discount loan?

Your firm intends to finance the purchase of a new construction crane. The cost is $1,500,000. What is the size of the first payment if the crane is financed with an interest-only loan at an annual rate of 8.50%?

By choosing to attend college today, you have agreed to pay $17,000 per year in tuition and fees for the next five years. (What… you really thought that you would graduate in four years?) In addition to the tuition and fees, you have also given up the ability to work full time and earn $23,000 per year for the next five years. If your required rate of return is 5% (the U.S. long-run average rate of inflation plus an average real rate of return), what is the total cost in today's dollars of your college degree, assuming that all of the aforementioned cash flows are ordinary annuities?

If you borrow $50,000 at an annual interest rate of 12% for six years, what is the annual payment (prior to maturity) on a fully amortized loan?

A/An ________ is a series of equal end-of-the-period cash flows.

If you borrow $100,000 at an annual rate of 8.00% for a 10-year period and repay with 10 equal annual end-of-the-year payments of $14,902.95, then you have just repaid what type of loan?

Your parents have an investment portfolio of $400,000, and they wish to take out cash flows of $50,000 per year as an ordinary annuity. How long will their portfolio last if the portfolio is invested at an annual rate of 4.50%? Use a calculator to determine your answer.

Which of the following is greater (answers rounded to the nearest cent)?