Exam 3: Time Value of Money - Introduction

Joe expects to receive a gift of $1,000 when he graduates one year from today.Joe can invest his gift at 6% compounded annually and he would like to use the funds in four years to purchase an engagement ring for Mabel.How much will he have in four years to spend on a ring?

You want to have $14,521 at the end of four years.How much do you have to invest today to accumulate that total if you can earn 6% compounded annually?

You invest $2,500 today at an interest rate of 20% compounded annually.How much will you accumulate after 35 years?

$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)

If a US Saving bond can be purchased for $29.50 and has a maturity value at the end of 25 years of $100,what is the annual rate of return on the bond?

Shylock Bank offers a savings account with a nominal rate of 9% and quarterly compounding.What is the effective rate of the account?

At an effective annual interest rate of 20%,how many years will it take a given amount to triple in value? (Round to the closest year.)

If you could borrow at 9.5% compounded semi-annually or at 9.4% compounded monthly,which would you prefer?

Shylock Bank offers a savings account with an effective interest rate of 9% and quarterly compounding.What is the nominal rate (APR)on the account?

In 6 years you are going to need $1,000 dollars.How much will you need to invest today at 7% in order to save the money you need?

Current assets values may be estimated by calculating:

When the amount earned on a deposit has become part of the principal at the end of a specified time period the concept is called:

A college received a contribution to its endowment fund of $2 million.They can never touch the principal,but they can use the earnings.At an assumed interest rate of 9.5 percent,how much can the college earn to help its operations each year?

You have $253.05 today.A friend wants to borrow that money from you and pay you back $310 at the end of 3 years.What rate of return (per annum)will you earn from the loan?

Consider the two investments shown in the table.Find the present value of each at Year 0 assuming an interest rate of 5%.What is the percentage difference in the present values (with Investment 1 as the base of the percentage)?

You have some money on deposit in a bank account which pays a nominal (or quoted)rate of 8.0944 percent,but with interest compounded daily (using a 365 day year).Your friend owns a security which calls for the payment of $10,000 after 27 months.The security is just as safe as your bank deposit,and your friend offers to sell it to you for $8,000.If you buy the security,by how much will the effective annual rate of return on your investment change?

You wish to deposit $7,000 in an account at the Shylock Bank.The bank pays interest at a nominal annual rate of 10% compounded quarterly.What is the effective interest rate offered by Shylock?

The present value of $200 to be received 10 years from today,assuming an opportunity cost of 10 percent,is: (Round to the nearest whole dollar)

The future value of $200 received today and deposited for three years in an account which pays semiannual interest of 8 percent is:

The rate of interest actually paid or earned,is the ________ interest rate