Exam 5: Time Value of Money

The future value of $200 received today and deposited at 8 percent for three years is

The effective rate of interest is the contractual rate of interest charged by a lender or promised by a borrower.

The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is

Tom is evaluating the growth rate in dividends of a company over the past 6 years. What is the annual compound growth rate if the dividends are as follows:

Colin has inherited $6,000 from the death of Grandma Anna. He would like to use this money to buy his mom Hayley a new scooter costing $7,000 2 years from now. Will Colin have enough money to buy the gift if he deposits his money in an account paying 8 percent compounded semi-annually?

The future value of $100 received today and deposited at 6 percent for four years is

Find the present value of the following stream of cash flows, assuming that the firm's opportunity cost is 14 percent.

Aunt Tillie has deposited $33,000 today in an account which will earn 10 percent annually. She plans to leave the funds in this account for seven years earning interest. If the goal of this deposit is to cover a future obligation of $65,000, what recommendation would you make to Aunt Tillie?

Last Christmas, Danny received an annual bonus of $1,500. These annual bonuses are expected to grow by 5 percent for the next 5 years. How much will Danny have at the end of the fifth year if he invests his Christmas bonuses (including the most recent bonus) in a project paying 8 percent per year?

Calculate the present value of a $10,000 perpetuity at a 6 percent discount rate.

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

A generous benefactor to the local ballet plans to make a one-time endowment which would provide the ballet with $150,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods. How large must the endowment be?

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

A wealthy industrialist wishes to establish a $2,000,000 trust fund which will provide income for his grandchild into perpetuity. He stipulates in the trust agreement that the principal may not be distributed. The grandchild may only receive the interest earned. If the interest rate earned on the trust is expected to be at least 7 percent in all future periods, how much income will the grandchild receive each year?

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

In general, with an amortized loan, the payment amount grows over the life of the loan, the principal portion of each payment grows over the life of the loan, and the interest portion declines over the life of the loan.

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?

Jia 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

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.