Exam 5: Time Value of Money

Your uncle has $955,000 and wants to retire.He expects to live for another 25 years,and he also expects to earn 7.5% on his invested funds.How much could he withdraw at the beginning of each of the next 25 years and end up with zero in the account?

Your bank account pays a 6% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?

Ten years ago,Lucas Inc.earned $0.50 per share.Its earnings this year were $3.60.What was the growth rate in earnings per share (EPS)over the 10-year period?

Last year Thomson Inc's earnings per share were $3.50,and its growth rate during the prior 5 years was 9.6% per year.If that growth rate were maintained,how many years would it take for Thomson's EPS to triple?

Your father is about to retire,and he wants to buy an annuity that will provide him with $74,000 of income a year for 25 years,with the first payment coming immediately.The going rate on such annuities is 5.15%.How much would it cost him to buy the annuity today?

Master Card and other credit card issuers must by law print the Annual Percentage Rate (APR)on their monthly statements.If the APR is stated to be 24.25%,with interest paid monthly,what is the card's EFF%?

What is the PV of an ordinary annuity with 5 payments of $6,200 if the appropriate interest rate is 4.5%?

Your girlfriend just won the Florida lottery.She has the choice of $15,900,000 today or a 20-year annuity of $1,050,000,with the first payment coming one year from today.What rate of return is built into the annuity? Disregard taxes.

You plan to invest in securities that pay 7.0%,compounded annually.If you invest $5,000 today,how many years will it take for your investment to grow to $9,140.20?

If we are given a periodic interest rate,say a monthly rate,we can find the nominal annual rate by dividing the periodic rate by the number of periods per year.

Charter Bank pays a 5.00% nominal rate on deposits,with monthly compounding.What effective annual rate (EFF%)does the bank pay?

How much would $5,000 due in 25 years be worth today if the discount rate were 5.5%?

You want to buy a new sports car 3 years from now,and you plan to save $2,700 per year,beginning one year from today.You will deposit your savings in an account that pays 5.2% interest.How much will you have just after you make the 3rd deposit,3 years from now?

When a loan is amortized,a relatively high percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage declines in the loan's later years.

Suppose a U.S.treasury bond will pay $1,700 five years from now.If the going interest rate on 5-year treasury bonds is 4.25%,how much is the bond worth today?

Time lines can be constructed in situations where some of the cash flows occur annually but others occur quarterly.

Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?

You inherited an oil well that will pay you $12,000 per year for 25 years,with the first payment being made today.If you think a fair return on the well is 7.5%,how much should you ask for it if you decide to sell it?

Disregarding risk,if money has time value,it is impossible for the future value of a given sum to exceed its present value.

You are considering two equally risky annuities,each of which pays $5,000 per year for 10 years.Investment ORD is an ordinary (or deferred)annuity,while Investment DUE is an annuity due.Which of the following statements is CORRECT?