Exam 5: Time Value of Money 2: Analyzing Annuity Cash Flows

Bank A charges a 7.75 percent annual percentage rate and interest is due at the end of the year.Bank B charges a 7 percent annual percentage rate and interest must be paid monthly.What is the effective annual rate charged by each bank?

You started your first job after graduating from college.Your company offers a retirement plan for which the company contributes 25 percent of what you contribute each year.You expect to contribute $5,000 per year from your salary.You decide to invest the contributions in assets that you expect to earn 8 percent per year.If you plan to retire in 35 years,how big will you expect that retirement account to be?

A loan is offered with monthly payments and a 14.5 percent APR.What is the loan's effective annual rate (EAR)?

Chase purchased a $23,000 car three years ago using a 14 percent,6-year car loan.He has decided that he would sell the car now if he could get a price that would pay off the balance of his loan.What is the minimum price Chase would need to receive for his car? (Assume monthly payments.)

What is the interest rate of a 6-year,annual $3,000 annuity with present value of $14,000?

In order to discount multiple cash flows to the present,one would use

What is the interest rate of a 6-year,annual $10,000 annuity with a present value of $40,000?

A perpetuity,a special form of annuity,pays cash flows

Assume that you contribute $300 per month to a retirement plan for 25 years.Then you are able to increase the contribution to $500 per month for 20 years.Given a 9 percent interest rate,what is the value of your retirement plan after 45 years?

Given a 6 percent interest rate,compute the year 6 future value of deposits made in years 1,2,3,and 4 of $1,200,$1,400,$1,400,and $1,500.

Your company borrows $55,000 today to fund its growth initiatives.It must repay the bank in four annual payments of $17,100 at the end of each year.What annual interest rate is your firm paying?

A mortgage broker is offering a 30-year mortgage with a teaser rate.In the first two years of the mortgage,the borrower makes monthly payments on only a 5.5 percent APR interest rate.After the second year,the mortgage interest charged increases to 8.5 percent APR.What is the effective interest rate in the first two years? What is the effective interest rate after the second year?

A mortgage broker is offering a 30-year mortgage with a teaser rate.In the first two years of the mortgage,the borrower makes monthly payments on only a 5 percent APR interest rate.After the second year,the mortgage interest charged increases to 8 percent APR.What is the effective interest rate in the first two years? What is the effective interest rate after the second year?

Payday loans are very short-term loans that charge very high interest rates.You can borrow $200 today and repay $250 in two weeks.What is the compound annual rate implied by this 25 percent rate charged for only two weeks?

What annual interest rate would you need to earn if you wanted a $200 per month contribution to grow to $14,700 in five years?

What is the present value of a $250 deposit in year 1,and another $50 deposit at the end of year 6 if interest rates are 10 percent?

You have secured a loan from your bank for two years to build your home.The terms of the loan are that you will borrow $120,000 now and an additional $52,000 in one year.Interest of 9 percent APR will be charged on the balance monthly.Since no payments will be made during the 2-year loan,the balance will grow.At the end of the two years,the balance will be converted to a traditional 30-year mortgage at a 6.5 percent interest rate.What will you pay as monthly mortgage payments (principal and interest only)?

When you get your credit card bill,if you make a payment larger than the minimum payment

Given a 4 percent interest rate,compute the year 6 future value of deposits made in years 1,2,3,and 4 of $1,000,$1,200,$1,200,and $1,400.

Joey realizes that he has charged too much on his credit card and has racked up $3,000 in debt.If he can pay $150 each month and the card charges 18 percent APR (compounded monthly),how long will it take him to pay off the debt?