Exam 5: Time Value of Money

To expand its operation,International Tools Inc.has applied to the International Bank for a 3-year,$3,500,000 loan.Prepare a loan amortization table assuming 10 percent rate of interest.

The present value of a perpetual income stream increases when the discount rate ________.

Thelma is planning for her son's college education to begin five years from today.She estimates the yearly tuition,books,and living expenses to be $5,000 per year for a four-year degree,assuming the expenses incur only at the end of the year.How much must Thelma deposit today,at an interest rate of 8 percent,for her son to be able to withdraw $5,000 per year for four years of college?

A wealthy art collector has decided to endow her favorite art museum by establishing funds for an endowment which would provide the museum with $1,000,000 per year for acquisitions into perpetuity.The art collector will give the endowment upon her fiftieth birthday 10 years from today.She plans to accumulate the endowment by making annual end-of-year deposits into an account.The rate of interest is expected to be 6 percent in all future periods.How much must the art collector deposit each year to accumulate to the required amount?

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

A wealthy benefactor wants to make a donation to a charity that will provide the charity with annual income of $250,000 forever,with the first payment to the charity made exactly 10 years from today.Assume that money donated to the charity will be invested in an account that earns 6%.How large must the donation be to generate the desired income stream?

When computing the number of deposits needed to accumulate a future sum,it will take longer if the interest rates are higher,holding the future value and deposit size constant.

A firm wishes to establish a fund which,in 10 years,will accumulate to $10,000,000.The fund will be used to repay an outstanding bond issue.The firm plans to make deposits,which will earn 12 percent,to this fund at the end of each of the 10 years prior to maturity of the bond.How large must these deposits be to accumulate to $10,000,000?

Assume Julian has a choice between two deposit accounts.Account A has an annual percentage rate of 7.55 percent but with interest compounded monthly.Account B has an annual percentage rate of 7.45 percent with interest compounded continuously.Which account provides the highest effective annual return?

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

Find the present value of the following stream of cash flows assuming an opportunity cost of 14 percent.

Detta borrows $20,000 from the bank.For a five-year loan,the bank requires annual end-of-year payments of $4,878.05.The annual interest rate on the loan is ________.

James plans to fund his individual retirement account,beginning today,with 20 annual deposits of $2,000.If he can earn an annual compound rate of 8 percent on his deposits,the amount in the account 20 years from today will be ________.

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.

Calculate the future value of $6,490 received today and deposited for five years in an account which pays interest of 14 percent compounded semiannually.

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

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.

The present value of a $20,000 perpetuity at a 7 percent discount rate is ________.

Hayley makes annual end-of-year payments of $6,260.96 on a five-year loan with an 8 percent interest rate.The original principal amount was ________.

You receive $1,200 today,$2,200 in one year,and $3,300 in two years.If you deposit these cash flows in an account earning 12%,how much money is in the account three years from now?