Exam 9: Time Value of Money

Bill Clinton plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years.If Bill he can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?

Discounting is an arithmetic process whereby a future value sum decreases at a compounding interest rate over time to reach a present value.

The interest rate determined by multiplying the interest rate charged per period by the number of periods in a year is called the:

Which of the following statements is false?

Which of the following characteristics is not descriptive of an amortization schedule?

A loan amortization schedule shows the breakdown of each payment between interest and principal, as well as the remaining balance after each payment.

For positive interest rates, the present value interest factor is

An annuity is a series of equal payments that occur over a number of time periods.

The effective annual rate (EAR) is the true opportunity cost measure of the interest rate.

An investment will mature in 20 years.Its maturity value is $1,000.If the discount rate is 7%, what is the present value of the investment?

Bruce Lee wishes to accumulate $1 million by making equal annual end-of-year deposits over the next 20 years.If Bruce he can earn 10 percent on his investments, how much must he deposit at the end of each year?

The annual rate of return is often referred to as the

Jill Clinton puts $1,000 in a savings passbook that pays 4% compounded quarterly.How much will she have in her account after five years?

When the annual interest rate stays the same, more frequent interest compounding helps savers earn more interest over the course of the year.

Dan Quayle plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years.If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

A potential investment pays $10 per year indefinitely.The appropriate discount rate for the potential investor is 10%.The present value of this cash flow is calculated by:

A famous athlete is awarded a $9 million contract that stipulates equal payments to be made monthly over a period of five years.To determine what such alump sum has the same value as the contract is worth today, you would need to use:

If I earn 3% on my deposit of $500, it will take 9 years before I have $550.

A fixed-rate mortgage is an example of an annuity.

Simple interest is interest earned on the investment's principal and subsequently-earned interest.