Exam 6: Time Value of Money

Alabama Power has preferred stock that pays an annual dividend of $9.44. If the security has no maturity, what is its value to an investor who wishes to obtain a 9 percent rate of return?

What is the future value of a three-year, $3,000 deposit at 6 percent interest, when interest is compounded continuously?

A sinking fund provides cash to pay off a stock's principal at maturity.

The effective annual rate will increase as the number of compounding periods per year increases.

The Summer Breeze Hotel borrowed $100,000 from the Meadowlands Bank to pay for a new air conditioning system. The loan is for a period of 5 years at an interest rate of 10% and requires 5 equal end-of-year payments that include both principal and interest on the outstanding balance. What will be the outstanding balance after the third payment?

While the present value of an amount is decreased by an increase in the frequency of compounding, the present value of an annuity is increased.

Jim Luster wants to have saved enough money by the time he is 65 to invest it and earn a $60,000 annual income for the rest of his life. He wants to be able to leave that same amount to his heirs, no matter how long he lives. If he can earn 8% on invested money, how much does he need to have accumulated by the time he is 65?

First Bank offers you a car loan at an annual interest rate of 10% compounded monthly. What effective annual interest rate is the bank charging you?

The present value of some expected future sum increases as the interest rate increases.

Which of the following series of cash flows includes an imbedded annuity?

Six years ago you paid $20 per share for 100 shares of stock. Today you sold the 100 shares for $30 per share. Determine the average annual rate of return on your investment, assuming the stock paid no dividends.

An annuity with $1,000 annual payments at the end of each year, with a 10% interest rate, is worth how much at the end of four years?

If you invest money at 8% compounded monthly, what Effective Annual Rate (EAR) are you receiving?

Suppose you put $100 into a savings account today, the account pays 8% compounded semiannually, and you withdraw $50 one year after your initial deposit. What would your ending balance be 20 years after the initial $100 deposit was made, assuming that you make no additional deposits?

If you invest the $10,000 you receive at graduation (age 22) in a mutual fund which averages a 12% annual return, how much will you have at retirement in 40 years?

You deposited $2,000 seven years ago and haven't touched the account since. Now you have $3,656 in the bank. What was the interest rate?

If you invest $10,000 in a 4-year certificate of deposit (CD) paying 10 percent interest compounded annually, determine how much the CD will be worth at the end of 4 years.

The payment or receipt of equal amounts, at the end of a series of equal periods, for a specified amount of time is called a(n):

An annuity is a series of equal payments separated by equal time intervals.

If an investor prefers the present value of an investment to its future value: