Exam 28: Time Value of Money

Suppose you are buying your first home for $145,000,and you have $15,000 for your down payment.You have arranged to finance the remainder with a 30-year,monthly payment,amortized mortgage at a 6.5% nominal interest rate,with the first payment due in one month.What will your monthly payments be?

Your aunt wants to retire and has $375,000.She expects to live for another 25 years and to earn 7.5% on her invested funds.How much could she withdraw at the end of each of the next 25 years and end up with zero in the account?

Your Aunt Elsa has $500,000 invested at 6.5%,and she plans to retire.She wants to withdraw $40,000 at the beginning of each year,starting immediately.What is the maximum number of whole payments that can be withdrawn before the account is exhausted,i.e.,before the account balance would become negative? (Hint: Round down to the nearest whole number.)

Your bank account pays an 8% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?

Suppose a State of New Mexico bond will pay $1,000 eight years from now.If the going interest rate on these 8-year bonds is 5.5%,how much is the bond worth today?

You plan to invest some money in a bank account.Which of the following banks provides you with the highest effective rate of interest?

Which of the following statements is CORRECT?

What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $3,000 at the end of Year 4 if the interest rate is 5%?

Which of the following statements regarding a 20-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?

Your uncle just won the weekly lottery,receiving $375,000,which he invested at a 7.5% annual rate.He now has decided to retire,and he wants to withdraw $35,000 at the end of each year,starting at the end of this year.What is the maximum number of whole payments that can be withdrawn before the account is exhausted,i.e.,before the account balance would become negative? (Hint: Round down to the nearest whole number.)

You just deposited $2,500 in a bank account that pays a 4.0% nominal interest rate,compounded quarterly.If you also add another $5,000 to the account one year (4 quarters)from now and another $7,500 to the account two years (8 quarters)from now,how much will be in the account three years (12 quarters)from now?

You are offered a chance to buy an asset for $7,250 that is expected to produce cash flows of $750 at the end of Year 1,$1,000 at the end of Year 2,$850 at the end of Year 3,and $6,250 at the end of Year 4.What rate of return would you earn if you bought this asset?

You would like to travel in South America 5 years from now,and you can save $3,100 per year,beginning one year from today.You plan to deposit the funds in a mutual fund that you think will return 8.5% per year.Under these conditions,how much would you have just after you make the 5th deposit,5 years from now?

Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.How much would you still owe at the end of the first year,after you have made the first payment?

You have just purchased a U.S.Treasury bond for $747.25.No payments will be made until the bond matures 5 years from now,at which time it will be redeemed for $1,000.What interest rate will you earn on this bond?

American Express and other credit card issuers must by law print the Annual Percentage Rate (APR)on their monthly statements.If the APR is stated to be 18.00%,with interest paid monthly,what is the card's EFF%?

How much would Roderick have after 6 years if he has $500 now and leaves it invested at 5.5% with annual compounding?

A perpetuity pays $85 per year and costs $950.What is the rate of return?

Suppose a Google.com bond will pay $4,500 ten years from now.If the going interest rate on safe 10-year bonds is 4.25%,how much is the bond worth today?

Your sister paid $10,000 (CF at t = 0)for an investment that promises to pay $750 at the end of each of the next 5 years,then an additional lump sum payment of $10,000 at the end of the 5th year.What is the expected rate of return on this investment?