Exam 5: Time Value of Money

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?

When a loan is amortized,a relatively low percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage increases in the loan's later years.

You have a chance to buy an annuity that pays $550 at the beginning 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?

Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.

If the discount (or interest)rate is positive,the present value of an expected series of payments will always exceed the future value of the same series.

Suppose you are buying your first condo for $145,000,and you will make a $15,000 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?

Last year Dania Corporation's sales were $525 million.If sales grow at 7.5% per year,how large (in millions)will they be 8 years later?

Your bank offers to lend you $100,000 at an 8.5% annual interest rate to start your new business.The terms require you to amortize the loan with 10 equal end-of-year payments.How much interest would you be paying in Year 2?

Which of the following statements is CORRECT?

Some of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts.

Midway through the life of an amortized loan,the percentage of the payment that represents interest could be equal to,less than,or greater than to the percentage that represents repayment of principal.The proportions depend on the original life of the loan and the interest rate.

As a result of compounding,the effective annual rate on a bank deposit (or a loan)is always equal to or less than the nominal rate on the deposit (or loan).

Your uncle has $375,000 and wants to retire.He expects to live for another 25 years,and he also expects to earn 7.5% on his invested funds.How much could he withdraw at the beginning of each of the next 25 years and end up with zero in the account?

Your uncle will sell you his bicycle shop for $250,000,with "seller financing," at a 6.0% nominal annual rate.The terms of the loan would require you to make 12 equal end-of-month payments per year for 4 years,and then make an additional final (balloon)payment of $50,000 at the end of the last month.What would your equal monthly payments be?

Which of the following bank accounts has the highest effective annual return?

Which of the following statements is CORRECT?

How much would $1,growing at 3.5% per year,be worth after 75 years?

Which of the following investments would have the highest future value at the end of 10 years? Assume that the effective annual rate for all investments is the same and is greater than zero.

You sold a car and accepted a note with the following cash flow stream as your payment.What was the effective price you received for the car assuming an interest rate of 6.0%? ​ ​ ​