Exam 3: The Time Value of Money

You inherit $15,000 from your aunt.You decide to invest the money in a three-year CD that pays 4% interest to use as a down payment on a house.How much money will you have when the CD matures?

Consider the following cash flows each arriving at the end of the year.If the discount rate is 15% COMPOUNDED QUARTERLY,what is the present value?

By increasing the number of compounding periods in a year,while holding the annual percentage rate constant,you will

Which of the following cannot be calculated?

In the equation below,the number "100" represents $75.13 = $100 / (1 + .1)³

You are planning your retirement and you come to the conclusion that you need to have saved $1,250,000 in 30 years.You can invest into an retirement account that guarantees you a 5% return.How much do you have to put into your account at the end of every month to reach your retirement goal?

You set up a college fund in which you pay $2,000 each year at the end of the year.How much money will you have accumulated in the fund after 18 years,if your fund earns 7% compounded annually?

Prudent Policy Life Insurance Co.offers a 10-year term life insurance policy with a $250,000 benefit and annual premiums of $200,paid at the BEGINNING of each year.If Prudent can earn 8% on invested capital,what is the present value to the firm of the premiums from one policy,assuming the policy holder outlives the policy term?

Emma Industries records the following cash flows at the end of each year for a project.If the firm's discount rate is 11%,COMPOUNDED CONTINOUSLY,what is the PRESENT VALUE of the project?

What is the present value of $25 to be received at the end of each year for the next 6 years if the discount rate is 12%?

Forever Insurance Company has offered to pay you or your heirs $100 per year at the end of each year forever.If the correct discount rate for such a cash flow is 13%,what the amount that you would be willing to pay Forever Insurance for this set of cash flows?

Pam is in need of cash right now and wants to sell the rights to a $1,000 cash flow that she will receive 5 years from today.If the discount rate for such a cash flow is 9.5%,then what is the fair price that someone should be willing to pay Pam today for rights to that future cash flow?

Mayfield Development,LLC forecasts the following cash flows at the BEGINNING of each year for a project.If the firm's discount rate is 9%,what is the present value of the project?

Roxy Botanicals forecasts the following cash flows at the end of each year for a project.If the firm's discount rate is 9%,COMPOUNDED CONTINOUSLY,what is the present value of the project?

If you deposit $10,000 today in an account that pays 5% interest compounded annually for five years,how much interest will you earn?

The present value of an ordinary annuity is $2,000.The annuity features monthly payments from an account that pays 12% APR (with monthly compounding).If this was an annuity due,what would be the present value? (assume that same interest rate and same payments)

Your father's pension recently vested and he is told that if he never works another day in his life,he will receive a lump sum of $1,500,000 on his 65th birthday (exactly 15 years from today).Assume that your father needs to permanently retire today.What could he sell the rights to his lump sum for,today,if the correct discount rate for such a calculation is 6%?

An annuity can best be described as

What is the future value of a 5-year ordinary annuity with annual payments of $250,evaluated at a 15 percent interest rate?

You would like to retire with $1 million on your 60th birthday.If you start saving equal annual amounts on your 26th birthday,make your last deposit on your 60th birthday,and earn 10% interest on your money,how much must you invest each year to achieve your goal?