Exam 5: Time Value of Money

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows.Which of the following would lower the calculated value of the investment?

Suppose Community Bank offers to lend you $10,000 for one year at a nominal annual rate of 19.50%,but you must make interest payments at the end of each quarter and then pay off the $10,000 principal amount at the end of the year.What is the effective annual rate on the loan?

Which of the following bank accounts has the lowest effective annual return?

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?

The present value of a future sum increases as either the discount rate or the number of periods per year increases,other things held constant.

Suppose you borrowed $35,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.By how much would you reduce the amount you owe in the first year?

A $50,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?

What is the PV of an ordinary annuity with 5 payments of $8,500 if the appropriate interest rate is 4.5%?

Which of the following statements is CORRECT,assuming positive interest rates and holding other things constant?

Time lines cannot be constructed for annuities unless all the payments occur at the end of the periods.

If the discount (or interest)rate is positive,the present value of an expected series of payments will always exceed the future value of the same series.

Suppose your credit card issuer states that it charges a 23.75% nominal annual rate,but you must make monthly payments,which amounts to monthly compounding.What is the effective annual rate?

Sue now has $410.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Your sister turned 35 today,and she is planning to save $50,000 per year for retirement,with the first deposit to be made one year from today.She will invest in a mutual fund that's expected to provide a return of 7.5% per year.She plans to retire 30 years from today,when she turns 65,and she expects to live for 25 years after retirement,to age 90.Under these assumptions,how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.

What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $1,550 at the end of Year 4 if the interest rate is 5%?

Which of the following statements is CORRECT,assuming positive interest rates and holding other things constant?

A $150,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?

Your uncle will sell you his bicycle shop for $150,000,with "seller financing," at a 6.0% nominal annual rate.The terms of the loan would require you to make 12 equal end-of-month payments per year for 4 years,and then make an additional final (balloon)payment of $50,000 at the end of the last month.What would your equal monthly payments be?

Your company has just taken out a 1-year installment loan for $72,500 at a nominal rate of 10.0% but with equal end-of-month payments.What percentage of the 2nd monthly payment will go toward the repayment of principal?

What is the present value of the following cash flow stream at a rate of 11.00%? ​