Exam 5: Time Value of Money

During her four years at college,Hayley received the following amounts of money at the end of each year from her grandmother.She deposited her money in a savings account paying 6 percent rate of interest.How much money will Hayley have on graduation day?

The future value of an ordinary annuity of $2,000 each year for 10 years,deposited at 12 percent,is ________.

Nico is the new assistant branch manager of a larger Florida-based bank and the branch manager has asked him a question to test his knowledge.The question he asked is which rate should the bank advertise on monthly-compounded loans,the nominal annual percentage rate or the effective annual percentage rate? Which rate should the bank advertise on quarterly-compounded savings accounts? Explain.As a consumer,which would you prefer to see and why?

Entertainer's Aid plans five annual colossal concerts,each in a different nation's capital.The concerts will raise funds for an endowment which would provide the World Wide Hunger Fund with $3,000,000 per year into perpetuity.The endowment will be given at the end of the fifth year.The rate of interest is expected to be 9 percent in all future periods.How much must Entertainer's Aid deposit each year to accumulate to the required amount?

You are considering the purchase of new equipment for your company and you have narrowed down the possibilities to two models which perform equally well.However,the method of paying for the two models is different.Model A requires $5,000 per year payment for the next five years.Model B requires the following payment schedule.Which model should you buy if your opportunity cost is 8 percent?

Dan plans to fund his individual retirement account (IRA)with the maximum contribution of $2,000 at the end of each year for the next 10 years.If Dan can earn 10 percent on his contributions,how much will he have at the end of the tenth year?

Calculate the present value of the following stream of cash flows,assuming that the firm's opportunity cost is 15 percent.

The rate of return earned on an investment of $50,000 today that guarantees an annuity of $10,489 for six years is approximately ________.

The present value of $100 received at the end of year 1,$200 received at the end of year 2,and $300 received at the end of year 3,assuming an opportunity cost of 13 percent,is ________.

The present value of an ordinary annuity of $350 each year for five years,assuming an opportunity cost of 4 percent,is ________.

A ski chalet at Peak n' Peak now costs $250,000.Inflation is expected to cause this price to increase at 5 percent per year over the next 10 years before Chris and Julie retire from successful investment banking careers.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 ski chalet upon retirement?

For a given positive interest rate,the future value of $100 increases with the passage of time.Thus,the longer the period of time,the greater the future value.

You have been given a choice between two retirement policies as described below. Policy A: You will receive equal annual payments of $10,000 beginning 35 years from now for 10 years. Policy B: You will receive one lump-sum of $100,000 in 40 years from now. Which policy would you choose? Assume rate of interest is 6 percent.

Julian was given a gold coin originally purchased for $1 by his great-grandfather 50 years ago.Today the coin is worth $450.The rate of return realized on the sale of this coin is approximately equal to ________.

Find the present value of the following stream of a firm's cash flows,assuming that the firm's opportunity cost is 25 percent.

Otto is planning for his son's college education to begin ten years from today.He estimates the end-of-the-year tuition,books,and living expenses to be $10,000 per year for a four-year degree.How much must Otto deposit today,at an interest rate of 12 percent,for his son to be able to withdraw $10,000 per year for four years of college?

Future value increases with increases in the interest rate or the period of time funds are left on deposit.

Dan and Jia are newlyweds and have just purchased a condominium for $70,000.Since the condo is very small,they hope to move into a single-family house in 5 years.How much will their condo worth in 5 years if inflation is expected to be 8 percent?

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 10 years?

The following table presents the Sally's Silly Service Company's net earnings for the past six years.Compute the growth rate in the company's earnings.