Exam 4: Introduction to Valuation: The Time Value of Money

Stacey deposits $5,000 into an account that pays 2 percent interest,compounded annually.At the same time,Kurt deposits $5,000 into an account paying 3.5 percent interest,compounded annually.At the end of three years:

The future value of a lump sum investment will increase if you:  

By definition,a bank that pays simple interest on a savings account will pay interest:

Kendall is investing $3,333 today at 3 percent annual interest for three years.Which one of the following will increase the future value of that amount?

You want to invest an amount of money today and receive back twice that amount in the future.You expect to earn 6 percent interest.Approximately how long must you wait for your investment to double in value?

Given an interest rate of zero percent,the future value of a lump sum invested today will always:

Sixty years ago,your grandparents opened two savings accounts and deposited $250 in each account.The first account was with City Bank at 3.6 percent,compounded annually.The second account was with Country Bank at 3.65 percent,compounded annually.Which one of the following statements is true concerning these accounts? (Do not round intermediate calculations.)

Rob wants to invest $15,000 for 7 years.Which one of the following rates will provide him with the largest future value?

Ben invested $7,500 twenty years ago with an insurance company that has paid him 6 percent simple interest on his funds.Charles invested $7,500 twenty years ago in a fund that has paid him 6 percent interest,compounded annually.How much more interest has Charles earned than Ben over the past 20 years?

You have been told that you need $32,000 today for each $100,000 you want when you retire 28 years from now.What rate of interest was used in the present value computation? Assume interest is compounded annually.

Which one of the following is a correct statement,all else held constant?

Angela has just received an insurance settlement of $22,500.She wants to save this money until her daughter goes to college.If she can earn an average of 4.7 percent,compounded annually,how much will she have saved when her daughter enters college 6 years from now?

Computing the present value of a future cash flow to determine what that cash flow is worth today is called:

How long will it take to double your savings if you earn 6.4 percent interest,compounded annually?

You expect to receive $5,000 at graduation one year from now.Your plan is to invest this money at 6.5 percent,compounded annually,until you have $50,000.At that time,you plan to travel around the world.How long from now will it be until you can begin your travels?

Today,Charity wants to invest less than $3,000 with the goal of receiving $3,000 back some time in the future.Which one of the following statements is correct?

Suppose that in 2015,a $10 silver certificate from 1898 sold for $11,700.For this to have been true,what would the annual increase in the value of the certificate have been?

You are scheduled to receive $7,500 in two years.When you receive it,you will invest it at 4.5 percent per year.How much will your investment be worth ten years from now?

Your parents spent $7,800 to buy 200 shares of stock in a new company 12 years ago.The stock has appreciated 14.6 percent per year on average.What is the current value of those 200 shares?

You have $5,000 you want to invest for the next 45 years.You are offered an investment plan that will pay you 6 percent per year for the next 15 years and 10 percent per year for the last 30 years.How much will you have at the end of the 45 years?