Exam 4: Time Value of Money - Streams and Valuations

Sarah found her dream lakefront home,valued at $250,000.She plans to buy a home just like it when she retires in 15 years.Sarah can earn 11% per year on her investments.The price of the house will increase 3% per year for the next 15 years.How much must she invest at the end of each of the next 15 years to finance the purchase?

You are 30 years old and you want to retire at age 60 with $1.5 million.You are going to make equal annual deposits into your savings account at the end of each year in order to save up this money.Your savings account pays 8% interest.What amount must you deposit each year?

The future value of a $10,000 annuity deposited at 12 percent compounded annually for each of next 5 years is: (Round to the nearest whole dollar)

You just took out a $12,000 loan for your small business.The loan has a four year term and repayment is in the form of four equal end-of-year payments.The interest rate on the loan is 11.5%.Consider the final loan payment.How much principal do you pay in the final payment?

Your pension plan has two alternative payout methods.The first is a lump sum of $300,000 on your 65th birthday.The second is ordinary annuity with the first payment on your 66th birthday and the last payment on your 85th birthday.If the interest rate is 10.5%,then what size annuity payment would equate the value of the two alternatives?

You would like to buy a Harley Davidson and you can afford to make a down payment of $2,000 and pay monthly (end-of-month)payments of $1,320.If the term is 48 months and the loan rate is 9% (APR),then what is the maximum that you can pay for the motorcycle?

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 to cruise? (Round to the nearest whole dollar)

Actively managed mutual funds charge higher management fees than passive funds.Assume that the net return to an active fund (after fees)is 9.5% (0.79% per month)and the net return to a passive fund is 10.5% (0.875% per month).Consider an investor who invests $600 per month (end-of-month)over thirty years in the passive fund.What is the future value of her savings? Now consider an investor who invests on a monthly basis over thirty years in the active fund.If the active fund investor wants the same future value as the passive fund investor,then how much more must she invest per month?

You are offered a perpetuity that will pay you $18,000 per year starting in one year.The seller wants you to pay $300,000 for the perpetuity.If you buy it at that price,what return will you earn?

Margaret plans to deposit $500 on the first day of each of the next five years,beginning today.If she earns 4% compounded annually,how much will she have at the end of five years?

To pay for her college education,Gina is saving $2,000 at the beginning of each year for the next eight years in a bank account paying 12 percent interest.How much will Gina have in that account at the end of 8th year? (Round up to the nearest whole dollar amount)

Jacquie plans to deposit $3,500 into her savings account for each of the next 5 years,and then $2,000 per year for 5 years after that (all at year end).She anticipates interest rates to be 6% for the next 3 years and then 9% thereafter.How much will she have in the account after the 10 years?

You are saving for your child's university education.It is her 1st birthday today.She will start university just after her 19th birthday.You are going to save $2,000 per year each year starting today and ending on her 18th birthday.If you expect to earn a rate of 5% in the savings account,then how much will you have saved by her 19^th birthday?

Donna makes annual end of year payments of $5,403.71 on a four year loan with an interest rate of 13 percent.The original principal amount was: (Round to the nearest whole dollar)

What is the rate of return on an investment of $16,278 if the company expects to receive $3,000 per year for the next ten years?

An annuity in which payments are made at the beginning of each period is a(n):

Consider an investor who invests $600 per month (end-of-month)over thirty years in a mutual fund that earns 1% per month.What is the future value of her savings?

Peter will receive $1,200 at the beginning of each of the next seven years.What is the future value of this annuity,assuming the interest rate is 9% compounded annually? (Round to the nearest whole dollar)

You can invest $3,000 at the end of each of the next 20 years into a retirement account paying 10% annual interest.Alternatively,you can enter into a retirement plan with your employer where,for every yearly (end-of-year)payment of $3,000 you make,the firm will contribute $1,500.Your employer's plan will also last for the next 20 years.The firm guarantees a return of 7% on its retirement plan.Which option is better?

Indicate which of the following is true about annuities.