Exam 5: The Time Value of Money

A car's price is currently $20,000 and is expected to rise by 4% a year.If the interest rate is 6%,how much do you need to put aside today to buy the car one year from now?

The APR on a loan must be equal to the effective annual rate when:

The effective annual interest rate cannot be less than the annual percentage rate.

Nominal dollars refer to their purchasing power.

The present value of a perpetuity can be determined by:

How much do you need when you retire to provide a $2,500 monthly check that will last for 25 years? Assume that your savings can earn 0.5% a month.

If interest is paid m times per year,then the per-period interest rate equals the:

A bond promises to pay $1,000 20 years from today.No interest will be paid on the bonds during the 20 years If the interest rate is 7%,what is the bond's present value?

The concept of compound interest refers to:

How much more would you be willing to pay today for an investment offering $10,000 in 4 years rather than in 5 years? Your discount rate is 8%.

How much interest will be earned in an account into which $1,000 is deposited for one year with continuous compounding at a 13% rate?

After reading the fine print in your credit card agreement,you find that the "low" interest rate is actually an 18% APR,or 1.5% per month.What is the effective annual rate?

What will be the monthly payment on a $75,000 30-year home mortgage at 1% interest per month?

Suppose you take out a 30-year mortgage for $100,000 with annual payments.The interest rate on the mortgage is 8%.When you have paid off half the mortgage,so that the value of the remaining payments is reduced to $50,000,how many more payments need to be made?

The salesperson offers,"Buy this new car for $25,000 cash or,with an appropriate down payment,pay $500 per month for 48 months at 8% interest." Assuming that the salesperson does not offer a free lunch,calculate the "appropriate" down payment.

What is the discount factor for $1 to be received in 5 years at a discount rate of 8%?

How much must be invested today in order to generate a 5-year annuity of $1,000 per year,with the first payment 1 year from today,at an interest rate of 12%?

"Give me $5,000 today and I'll return $10,000 to you in 5 years," offers the investment broker.To the nearest percent,what annual interest rate is being offered?

Your retirement account has a current balance of $50,000.You plan to add $6,000 a year to the account for each of the next 30 years.Use a financial calculator or Excel to find what interest rate you need to earn in order to have $1,000,000 in the account at the end of the 30 years.?

An investment offers to pay $100 a year forever starting at the end of year 6.If the interest rate is 8%,what is the investment's value today?