Exam 9: The Time Value of Money

The future value of an annuity assumes that the payments are received at the end of the year and that the last payment does not compound.

The IF for the future value of an annuity is 4.641 at 10% for 4 years. If we wish to accumulate $8,000 by the end of 4 years, how much should the annual payments be?

Discounted at 6%, $1000 received three years from now is worth less than $800 received today. (App. B: 3 periods, 6%) = $1,000 x .840 = $840

The time value of money concept becomes less critical as the prime rate increases.

The amount of annual payments necessary to repay a mortgage loan can be found by reference to the present value of an annuity table.

A dollar today is worth more than a dollar to be received in the future because

Mr. Fish wants to build a house in 8 years. He estimates that the total cost will be $150,000. If he can put aside $10,000 at the end of each year, what rate of return must he earn in order to have the amount needed?

To find the yield on investments which require the payment of a single amount initially, and which then return a single amount some time in the future, the correct table to use is

The future value is the same concept as the way money grows in a bank account.

If you were to put $1,000 in the bank at 6% interest each year for the next ten years, which table would you use to find the ending balance in your account?

Football player Walter Johnson signs a contract calling for payments of $250,000 per year, to begin 10 years from now. To find the present value of this contract, which table or tables should you use?

When adjusting for semi-annual compounding of an annuity, the adjustments include multiplying the periods and annuity by 2.

How much must you invest at 8% interest in order to see your investment grow to $8,000 in 10 years?

If Allison has saved $1,000,000 upon retirement, how much can she live on each year if she can earn 6% per year and will end with $0 when she expects to die 25 years after retirement?

The time value of money is not a useful concept in determining the value of a bond or in capital investment decisions.

Gary Kiraly wants to buy a new Italian sports car in three years. The vehicle is expected to cost $80,000 at that time. If Gary should be so lucky as to find an investment yielding 12% over that three-year period, how much would he have to invest now in order to accumulate $80,000 at the end of the three years?

Mr. Sullivan is borrowing $2 million to expand his business. The loan will be for ten years at 12% and will be repaid in equal quarterly installments. What will the quarterly payments be? D. A = $2 million/23.115 = $86,524

Luke believes that he can invest $5,000 per year for his retirement in 30 years. How much will he have available for retirement if he can earn 8% on his investment?

Match the following with the items below:?

Babe Ruth Jr. has agreed to play for the Cleveland Indians for $3 million per year for the next 10 years. What table would you use to calculate the value of this contract in today's dollars?