Exam 5: Time Value of Money

What is the highest effective rate attainable with a 12 percent nominal rate?

Nico makes annual end-of-year payments of $5,043.71 on a four-year loan with an interest rate of 13 percent.The original principal amount was ________.

Everything else being equal,the longer the period of time,the lower the present value.

Colin has inherited $6,000 from his grandmother.He would like to invest this money for two years and then use the proceeds from that investment to buy a new high-end gaming computer for $7,000.Will Colin have enough money to buy the computer if he deposits his money in an account paying 8 percent compounded semiannually?

Aunt Tilly borrows $3,500 from the bank at 12 percent annually compounded interest to be repaid in four equal annual installments.The interest paid in the first year is ________.

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.

To buy his favorite car,Larry is planning to accumulate money by investing his Christmas bonuses for the next five years in a security which pays a 10 percent annual rate of return.The car will cost $20,000 at the end of the fifth year and Larry's Christmas bonus is $3,000 a year.Will Larry accumulate enough money to buy the car?

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 ________.

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?

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.

Xiao Li wishes to accumulate $50,000 by the end of 10 years by making equal annual end-of-year deposits over the next 10 years.If Xiao Li can earn 5 percent on her investments,how much must she deposit at the end of each year?

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

You receive $100 today,$200 in one year,and $300 in two years.If you deposit these cash flows into an account earning 12 percent,the value in the account three years from now is ________.

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

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 an account paying 8 percent per year?

Ms.Day needs $20,000 to buy her dream car.In her search for the best (low cost)loan,she has gathered the following information from three local banks.Which bank would you recommend Ms.Day borrow from?

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

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

An annuity with an infinite life is called a(n)________.

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