Exam 4: Time Value of Money

You want to buy a new sports car 3 years from now,and you plan to save $4,200 per year,beginning immediately.You will make three deposits in an account that pays 5.2% interest.Under these assumptions,how much will you have 3 years from today?

What is the present value of the following cash flow stream at an interest rate of 12.0% per year: $0 at Time 0; $1,500 at the end of Year 1; $3,000 at the end of Year 2; $4,500 at the end of Year 3; and $6,000 at the end of Year 4?

You have a chance to buy an annuity that pays $1,200 at the end of each year for 3 years.You could earn 5.5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

Which of the following statements is correct regarding time value of money?

Your child's orthodontist offers you two alternative payment plans.The first plan requires a $4,000 immediate up-front payment.The second plan requires you to make monthly payments of $137.41,payable at the end of each month for 3 years.What nominal annual interest rate is built into the monthly payment plan?

Suppose you inherited $275,000 and invested it at 8.25% per year.How much could you withdraw at the beginning of each of the next 20 years?

You want to go to Europe 5 years from now,and you can save $3,100 per year,beginning 1 year from today.You plan to deposit the funds in a mutual fund that you expect to return 8.5% per year.Under these conditions,how much will you have just after you make the fifth deposit,5 years from now?

Suppose a Government of Canada bond will pay $2,500 five years from now.If the going interest rate on 5-year treasury bonds is 4.25%,how much is the bond worth today?

What annual payment would you have to receive in order to earn a 7.5% rate of return on a perpetuity that has a cost of $1,250?

Suppose you borrowed $12,000 at a rate of 9% and must repay it in 4 equal installments at the end of each of the next 4 years.By how much would you reduce the amount you owe in the first year?

When inputting information into a financial calculator,one of the cash flow components must be negative since the calculator is set up to solve an equation equal to zero.

Which of the following is true regarding a mortgage?

At a rate of 6.25%,what is the present value of the following cash flow stream: $0 at Time 0; $75 at the end of Year 1; $225 at the end of Year 2; $0 at the end of Year 3; and $300 at the end of Year 4?

What's the rate of return you would earn if you paid $950 for a perpetuity that pays $85 per year?

Which of the following statements is correct?

Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 10% is correct?

If a bank pays a 4.50% nominal rate,with monthly compounding on deposits,what effective annual rate (EFF%) does the bank pay?

What is the PV of an annuity due with 10 payments of $2,700 at an interest rate of 6.5%?

Suppose a bank offers to lend you $10,000 for one year at a nominal annual rate of 10.25%,but you must make interest payments at the end of each quarter and then pay off the $10,000 principal amount at the end of the year.What is the effective annual rate on the loan?

Calculating present value and future value using simple interest will result in a smaller PV and FV than the same calculation using compound interest.