Exam 6: Time Value of Money

You have borrowed $130,000 to buy a new motor home. Your loan is to be repaid over 15 years at 8% compounded monthly. If you pay an extra $200 per month on the motor home, how many years will it take to pay off the loan?

Your local bank offers 4-year certificates of deposit (CDs) 12 % compounded quarterly. How much additional interest will you earn over 4 years on a $10,000 CD that is compounded quarterly, compared with one that is compounded annually?

Your monthly statement from your bank credit card shows that the monthly rate of interest is 1.5%. What is the effective annual rate of interest you are being charged on your credit card?

When using a present value of an annuity table:

Which of the following cash flows has the highest present value (PV) at a 15 percent discount rate?

The lower the interest rate, the less money you have to put in the bank today have a given amount at some point in the future.

Calculate the amount to be received at the end of year 1 that is equivalent to $150 at the end of year 1, $450 at the end of year 2, and $300 at the end of year 3, given a discount rate of 10%.

The EAR associated with credit cards is actually the nominal rate and is less than the APR.

What is the future value of $1,000, placed in a saving account for four years if the account pays 8%, compounded quarterly?

Which of the following cash flows is equivalent to receiving $125.00 today assuming a 9% annual discount rate?

Which of the following is not a time value key?

Keith Stone has a 10-year-old daughter, Kate, who will be entering college in 8 years. Keith estimates college costs to be $16,000, $17,000, $18,000 and $19,000 payable at the beginning of each of Kate's four years in college. How much must Keith save each year (assume end of year payments) for each of the next 8 years to have enough savings to pay for Kate's education when she starts college? Assume Keith can earn 9% on his savings.

If the discount rate is 12%, what is the present value of the following cash flows: Year CashFlow 1 \ 10,000 2 \ 11,000 3 \ 12,000 4 \ 13,000 5 \ 14,000 6-15 \ 15,000 each year

Your bank balance is exactly $10,000. Three years ago you deposited $7,938 and have not touched the account since. What annually compounded rate of interest has the bank been paying?

What are the payments on a $12,500, four-year bank loan at 12% compounded monthly?

The more frequent the compounding the:

Ordinary annuities differ from annuities due in that annuities due occur at the ends of time periods while ordinary annuities occur at the beginning.

A(n) ____ is a financial instrument that agrees to pay an equal amount of money per period into the indefinite future (i.e. forever).

A cash flow projected today for a future period of time is a:

Which of the following would increase the future value of an amount?