Exam 5: The Time Value of Money

You're ready to make the last of four equal,annual payments on a $1,000 loan with a 10% interest rate.If the amount of the payment is $315.47,how much of that payment is accrued interest?

An investment of $100 pays interest of 2.5% per quarter.What will be the value of this investment at the end of 3 years?

What is the annually compounded rate of interest on an account with an APR of 10% and monthly compounding?

Eighteen years from now,4 years of college are expected to cost $150,000.How much more must be deposited into an account today to fund this expense if you can earn only 8% on your savings rather than the 11% you hope to earn?

What is the APR on a loan that charges interest at the rate of 1.4% per month?

The more frequent the compounding,the higher the future value,other things equal.

If inflation in Wonderland was 3% per month in 2016,what was the annual rate of inflation?

How much more is a perpetuity of $1,000 worth than an annuity of the same amount for 20 years? Assume an interest rate of 10% and cash flows at the end of each period.

What is the present value of a five-period annuity of $3,000 if the interest rate per period is 12% and the first payment is made today?

If $120,000 is borrowed for a home mortgage,to be repaid at 9% interest over 30 years with annual payments of $11,680.36,how much interest (as opposed to return of capital)is paid in the last year of the loan?

On the day you retire you have $1,000,000 saved.You expect to live another 25 years during which time you expect to earn 6.19% on your savings while inflation averages 2.5% annually.Assume you want to spend the same amount each year in real terms and die on the day you spend your last dime.What real amount will you be able to spend each year?

A mortgage loan is an example of an amortizing loan."Amortizing" means that part of the monthly payment is used to pay interest on the loan and part is used to reduce the amount of the loan.

What happens over time to the real cost of purchasing a home if the mortgage payments are fixed in nominal terms and inflation is in existence?

A furniture store is offering free credit on purchases over $1,000.You observe that a big-screen television can be purchased for nothing down and $4,000 due in one year.The store next door offers an identical television for $3,650 but does not offer credit terms.Which statement below best describes the cost of the "free" credit?

Real interest rates:

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 interest is compounded semi-annually rather than annually,then:

An annuity due must have a present value at least as large as an equivalent ordinary annuity.

You have just retired with savings of $1.5 million.If you expect to live for 30 years and to earn 8% a year on your savings,how much can you afford to spend each year? Assume that you spend the money at the start of each year.

$50,000 is borrowed,to be repaid in three equal,annual payments with 10% interest.Approximately how much principal is amortized with the first payment?