Exam 5: The Time Value of Money

If the interest rate is positive,a six-year ordinary annuity of $500 per year must have a present value over $3,000.

A timeline identifies the timing and amount of a stream of cash flows,along with the interest rate it earns.

Your company has received a $50,000 loan from an industrial finance company.The annual payments are $6,202.70.If the company is paying 9 percent interest per year,how many loan payments must the company make?

You believe in the power of compounding and decide to save $1 per day by avoiding the purchase of a soda.You deposit the $1 at the end of each day in a bank account that pays 8% interest compounded daily.You are going to take a trip in 20 years with the money you have accumulated.How much money will you have in 20 years,assuming 365 days per year?

An investment promises to pay you the following amounts at the end of each of the next 10 years: (1)$1,000,(2)$2,000,(3)$3,000,(4)$4,000,(5)- (10)$5,000 per year.If you want to earn a return of 8% per year,how much will you be willing to pay for the investment today?

A bond will pay $5,000 at maturity in 9 years.It also makes semiannual interest payments of $400 until maturity.If the discount rate is 7% compounded semiannually,what should be the market price of the bond?

What is the future value of $500 invested at 8.94% compounded quarterly for 12.5 years (round to nearest $1)?

When repaying an amortized loan,the interest payments increase over time due to the compounding process.

When solving a problem involving an annuity due,you must select the "beg" or beginning mode on your financial calculator.

You borrow $25,000 to buy a car,and agree to make 48 monthly payments of $607.39 to repay the loan.What annual rate of interest,which is being compounded monthly,are you being charged?

Artificially low interest rates helped create the housing bubble because low interest rates (r value)create higher values (higher PVs).

If the future value of an annuity is known,then the present value of the annuity can be found using the present value of a lump sum formula,even if the amount of each annuity payment is unknown.

How much money do I need to place into a bank account that pays a 1.08% rate in order to have $500 at the end of 7 years?

A deferred annuity will pay you $500 at the end of each year for 10 years,however the first payment will not be made until three years from today (payments will be made at the end of years 3 through 12).What amount will you have to deposit today to fund this deferred annuity? Use an 8% discount rate and round your answer to the nearest $100.

If you only earned interest on your initial investment,and not on previously earned interest,it would be called simple interest.

At 6 percent compounded monthly,how long will it take to triple your money?

Charlie wants to retire in 15 years,and he wants to have an annuity of $50,000 a year for 20 years after retirement.Charlie wants to receive the first annuity payment the day he retires.Using an interest rate of 8%,how much must Charlie invest today in order to have his retirement annuity (round to nearest $10).

A return of 12% compounded annually is the same as a return of 1% per month.

At what rate must $287.50 be compounded annually for it to grow to $650.01 in 14 years?

Inputs using an Excel spreadsheet are almost identical to those on a financial calculator,except the interest rate is entered either as a decimal (.05)or a whole number followed by a % sign (5%)rather than simply a whole number (5)as you would enter using a financial calculator.