Exam 5: Time Value of Money

Danny Joe borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments. The interest paid in the first year is ________.

A beach house in Southern California now costs $350,000. Inflation is expected to cause this price to increase at 5 percent per year over the next 20 years before Eric and Karinna retire from successful careers in commercial art. How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the beach house upon retirement?

John borrowed $12,000 to buy a new car and expects to pay $564.87 per month for the next 2 years to pay off the loan. What is the loan's rate of interest?

James plans to fund his individual retirement account, beginning today, with 20 annual deposits of $2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of 8 percent on his deposits, the amount in the account upon retirement will be ________.

Jia borrows $50,000 at 10 percent annually compounded interest to be repaid in four equal annual installments. The actual end-of-year loan payment is ________.

You have been given the opportunity to earn $20,000 five years from now if you invest $9,524 today. What will be the rate of return to your investment?

Mr. & Mrs. Pribel wish to purchase a boat in 8 years when they retire. They are planning to purchase the boat using proceeds from the sale of their property which is currently worth $90,000 and its value is growing at 7 percent a year. The boat is currently worth $200,000 increasing at 5 percent per year. In addition to the value of their property, how much additional money should they deposit at the end of each year in an account paying 9 percent annual interest in order to be able to buy the boat upon retirement?

Everything else being equal, the higher the interest rate, the higher the future value.

To expand its operation, International Tools Inc. has applied to the International Bank for a 3-year, $3,500,000 loan. Prepare a loan amortization table assuming 10 percent rate of interest.

A deep-discount bond can be purchased for $312 and in 20 years it will be worth $1,000. What is the rate of interest on the bond?

Find the present value of the following stream of a firm's cash flows, assuming that the firm's opportunity cost is 14 percent.

The time value concept/calculation used in amortizing a loan is ________.

________ is the amount earned on a deposit that has become the part of the principal at the end of a specified time period.

How much would Sophie have in her account at the end of 10 years if she deposit $2,000 into the account today if she earned 8 percent interest and interest is compounded continuously?

China Manufacturing Agents, Inc. is preparing a five-year plan. Today, sales are $1,000,000. If the growth rate in sales is projected to be 10 percent over the next five years, what will the dollar amount of sales be in year five?

Janice would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000, and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise?

An annuity due is an amount that occur at the beginning of each period.

Which of the following is true of annuities?

Everything else being equal, the longer the period of time, the lower the present value.

When computing an interest or growth rate, the rate will increase with a decrease in future value, holding present value and the number of periods constant.