Exam 4: Time Value of Money - Streams and Valuations

A generous philanthropist plans to make a one-time endowment to a renowned heart research center which would provide the facility with $250,000 per year into perpetuity.The rate of interest is expected to be 8 percent for all future time periods.How large must the endowment be?

You have a 5-year amortized loan with a nominal rate of 11% and annual payments of $541.14.What is the original (time 0)principal of the loan?

5-year regular annuity has a present value of $1,000,and if the interest rate is 10%,what is the amount of each annuity payment?

You are offered an investment that will pay you the cash flows shown in the table.The first cash flow occurs in one year.The cost of the investment is $1,086.59 (today).What is the return on the investment?

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%.What are your annual loan payments?

In future value or present value problems,unless stated otherwise,cash flows are assumed to be:

Assume that you will receive $2,000 a year in Years 1 through 5,$3,000 a year in Years 6 through 8,and $4,000 in Year 9,with all cash flows to be received at the end of the year.If you require a 14 percent rate of return,what is the present value of these cash flows? (Round to the nearest whole dollar)

Joan is diligent and,starting on her 19^th Birthday,she deposits $1,000 in a bank account that pays an interest rate of 10%.She continues to save for six more years culminating on her 25^th birthday.After that birthday she stops saving but leaves her accumulated savings in a bank account for 40 years (to age 65).Roseanne is a partier and doesn't start saving until her 26th birthday,at which time she starts saving $1,000 a year until her 65th birthday.(Assume that Roseanne also earns a rate of 10%.)Who has more at age 65?

Betty 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: (Round to the nearest whole dollar)

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

The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of next 10 years is: (Round to the nearest whole dollar)

Jennifer presents a business plan to her bank's loan officer that predicts net cash flows for the first three years of $10,000,$15,000,and $8,000 respectively.If these cash flows occur at the end of each year and the discount rate is 4%,what is the total present value of these cash flows? (Round to the nearest whole dollar)

$100 is received at the beginning of year 1,$200 is received at the beginning of year 3.If these cash flows are deposited at 12 percent,their combined future value at the end of year three is: (Round to the nearest whole dollar)

Tony plans to deposit $1,000 at the end of each of the next three years.If his funds earn 5% compounded annually,how much will he have at the end of three years?

Ty was seriously injured in a planking accident.He successfully sued the railway company and was awarded $700,000.The railway cannot afford to pay the lump sum immediately and would prefer to make ten annual payments (at the end of each of the next ten years).If the interest rate is 10%,then what size of payment makes Ty indifferent between the lump-sum and the payments?

The present value of a $20,000 perpetuity at a 7 percent discount rate is: (Round to the nearest dollar)

What is the future value of an annuity due that pays $500 per year for each of the next three years if the interest rate is 6%?

You just graduated and you expect to work for ten years and then to leave for the Australian "Outback" bush country.You figure you can save $1,000 a year for the first five years and $2,000 a year for the next five years.These savings cash flows will start one year from now.In addition,your family has just given you a $5,000 graduation gift.If you put the gift now and your future savings when they start,into an account that pays 8% compounded annually,what will your financial "stake" be when you leave for Australia 10 years from now.(Round to the nearest whole dollar)

Your company is planning to borrow $1,000,000 on a 5-year,15%,annual payment,fully amortized term loan.What fraction of the payment made at the end of the second year will represent repayment of principal?

Suppose someone offered you your choice of two equally risky annuities,each paying $5,000 per year for 5 years.One is an annuity due,while the other is a regular (or deferred)annuity.If you are a rational wealth maximizing investor,which annuity would you choose?