Exam 5: Time Value of Money-The Basics

Three years from now, Barbara Waters will purchase a laptop computer that will cost $2,250. Assume that Barbara can earn 6.25% (compounded monthly) on her money. How much should she set aside today for the purchase? Round off to the nearest $1.

The present value of a single future sum

If you put $6,000 in a savings account that yields an 1% rate of interest compounded daily, what will the investment be worth at the end of one year?

The end of one time period and the beginning of the next occupy the same place on a timeline.

You are considering two investments. Investment A yields 10% compounded quarterly. Investment B yields i% compounded semiannually. Both investments have equal annual yields. Find i.

The future value of a lump sum deposited today increases as the number of years of compounding at a positive rate of interest declines.

The first amount on a timeline represent the present value of all the future amounts at a given interest rate.

If you plotted the future value of $1,000 growing at any interest rate greater than 0 with dollars on the vertical axis and time on the horizontal axis, the resulting curve would

What will the dollar amount be in four years, assuming that interest is paid annually?

The future value of a single sum

When using a financial calculator, which of the following is a correct way to find the future value of $200 deposited today in an account for four years paying annual interest of 2% compounded quarterly?

On timeline, the present is represented as

At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years?

For any number of compounding periods per year greater than 1, EAR will always be greater than the APR.

The present value of $400 to be received at the end of 10 years, if the discount rate is 5%, is

Sketch a timeline that represents an immediate investment of $20,000 with $25,000 to be received at the end of 4 years.

Which of the following formulas represents the future value of $500 invested at 8% compounded quarterly for five years?

As the number of compounding periods per year increase, the annual percentage rate of interest increases.

An investor will invest $1,000 now and expect to receive $10 for each of the next 10 years plus $1,000 at the end of the 10th year. Her cash flow at time period 0 is

Dawn Swift discovered that 20 years ago, the average tuition for one year at an Ivy League school was $15,000. Today, the average cost is $60,000. What is the growth rate in tuition cost over this 20-year period?