Exam 5: Time Value of Money

Zheng Sen wishes to accumulate $1 million by the end of 20 years by making equal annual end-of-year deposits over the next 20 years.If Zheng Sen can earn 10 percent on his investments,how much must he deposit at the end of each year?

Calculate the present value of an annuity of $3,900 each year for four years,assuming an opportunity cost of 10 percent.

Calculate the future value of an annuity of $5,000 each year for eight years,deposited at 6 percent.

The greater the interest rate and the longer the period of time,the higher the present value.

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

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?

Timothy borrows $6,930 from the bank.For a four-year loan,the bank requires annual end-of-year payments of $2,281.86.Calculate the interest rate on the loan.

$100 is received at the beginning of year 1,$200 is received at the beginning of year 2,and $300 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 3 is ________.

A local brokerage firm is offering a zero-coupon certificate of deposit for $10,000.At maturity,three years from now,the investor will receive $14,000.What is the rate of return on this investment?

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?

The New York Soccer Association would like to accumulate $10,000 by the end of 4 years from now to finance a big soccer weekend for its members.The Association currently has $2,500 and wishes to raise the balance by arranging annual fund-raising events.How much money should they raise at each annual fund-raising event assuming 8 percent rate of interest?

Ken borrows $15,000 from a bank at 10 percent annually compounded interest to be repaid in six equal installments.Calculate the interest paid in the second year.

The effective rate of interest differs from the nominal rate of interest in that it reflects the impact of compounding frequency.

How long would it take for Nico to save an adequate amount for retirement if he deposits $40,000 per year into an account beginning one year from today that pays 12 percent per year if he wishes to have a total of $1,000,000 at retirement?

Janice borrows $25,000 from the bank at 15 percent to be repaid in 10 equal annual installments.Calculate the end-of-year payment.

Calculate the future value of $10,000 received today and deposited for six years in an account which pays interest of 12 percent compounded quarterly.

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

Calculate the present value of $5,800 received at the end of year 1,$6,400 received at the end of year 2,and $8,700 at the end of year 3,assuming an opportunity cost of 13 percent.

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.

Since individuals are always confronted with opportunities to earn positive rates of return on their funds,the timing of cash flows does not have any significant economic consequences.