Exam 6: Time Value of Money

Your firm, New Sunrise, has just leased a $28,000 BMW for you. The lease requires six beginning of the year payments that will fully amortize the cost of the car. How much are the payments if the interest rate is 12 percent?

If the interest rate is 0%:

The Good Fairy has offered to give you $1,000,000 in 20 years. Because of your incredulity, the GF has volunteered to deposit the present value of the $1,000,000 in a trust managed by a bank or insurance company of your choice. How much must the GF deposit if the investment earns 5 percent? 10 percent?

A steady stream of earnings is:

FVF_k,n is always greater than 1, whereas PVF_k,n is always less than -1.

An increase in the frequency of compounding will increase the future value of an investment but decrease its present value.

If the interest rate is 6%, which expression will determine the appropriate price to pay for a business that you expect to earn $5,000 in each of the next ten years and be sold for $25,000 in the eleventh year.

The discounted value of a sum is its:

John is 25 years old and wishes to retire in 30 years. His plan is to invest in a mutual fund earning a 12 percent annual return and have a $1 million retirement fund at age 55. How much must he invest at the end of each year to achieve this goal?

The higher the rate of interest:

The present value of an annuity will be decreased by:

Roy, who has just turned 40, would like to have an annual annuity of $20,000 paid over a 20-year period, the first payment occurring on his 66th birthday. How much must Roy save each year (end of year) for the next 25 years to have this annuity, if the investment will earn 12 percent compounded annually?

Interest rates are quoted by stating the ____ followed by the compounding period.

An annuity due will have a smaller present value than a normal annuity.

Your uncle promises to give you $550 per quarter for the next five years starting today. How much is his promise worth right now if the interest rate is 8% compounded quarterly?

If $10,000 per year is deposited at 8% starting today and at the beginning of each of the next five years (6 deposits), the amount on deposit will be:

When interest rates are high, people prefer investments that return cash quickly.

Mr. Moore is 35 years old today and is beginning to plan for his retirement. He wants to set aside an equal amount at the end of each of the next 25 years so that he can retire at age 60. He expects to live to about 80, and wants to be able to withdraw $25,000 per year from the account on his 61st through 80th birthdays. The account is expected to earn 10 percent per annum for the entire period of time. Determine the size of the annual deposits that must be made by Mr. Moore.

Find the future value in two years of $100 that is deposited in an account, which pays 12%, compounded monthly.

At an interest rate of 0%, $1.00 received in 10 years is equivalent to $1.00 received in 5 years.