Exam 4: The Time Value of Money Part 2

What is the future value in year twenty-five of an ordinary annuity cash flow of $2,000 per year at an interest rate of 10.0% per year?

The future value three years from today of a $100 three-year annuity due compounded at a rate of 10% is equal to ________.

Marie has a $1,000,000 investment portfolio and she wishes to spend $87,500 per year as an ordinary annuity.If the investment account earns 6% annually,how long will her portfolio last? Use a calculator to determine your answer.

An annuity is a series of

If you borrow $100,000 at an annual rate of 8.00% for a 10-year period and repay the total amount of principal and interest due of $215,892.50 at the end of 10 years,what type of loan did you have?

Which of the following is NOT true with regard to an amortization table?

Your employer has agreed to place year-end deposits of $1,000,$2,000 and $3,000 into your retirement account.The $1,000 deposit will be one year from today,the $2,000 deposit two years from today,and the $3,000 deposit three years from today.If your account earns 5% per year,how much money will you have in the account at the end of year three when the last deposit is made?

Elliot Industries invests a portion of its profits each year into a benefit emergency health care account for its employees.For the last five years it has invested year-end amounts of $50,000,$43,000,$26,000,$61,000,and $84,000.If the last deposit ($84,000)was made today and the account earns an average of 7.3% per year,how much money is currently in the account,assuming there have been no withdrawals?

Ordinary annuity payments occur at the beginning of the period,whereas annuity due payments occur at the end of the period.

Home mortgage loans are commonly paid off by making equal monthly payments consisting of both interest and principal.This is an example of an amortized loan.

You sign a contract to pay back all of the interest and principal of a loan at the maturity date.This is an example of a discount loan.

Given positive equal annual cash flows and a positive interest rate,the present value of an annuity will be greater than the sum of the cash flows.

You just won the Publisher's Clearing House Sweepstakes and the right to 20 after-tax ordinary annuity cash flows of $163,291.18.Assuming a discount rate of 7.50%,what is the present value of your lottery winnings? Use a calculator to determine your answer.

You have accumulated $800,000 for your retirement.How much money can you withdraw in equal annual beginning-of-the-year cash flows if you invest the money at a rate of 7% for thirty years?

Which of the following is NOT an example of annuity cash flows?

After winning the lottery,you state that you are indifferent between receiving twenty $500,000 end-of-the-year payments (first payment one year from today),or a lump sum of $5,734,961 today.What interest rate are you using in your decision-making process such that you are indifferent between the two choices?

A never-ending stream of equal periodic,end-of-the-period cash flows is called a/an ________.

Which of the following choices will result in a greater future value at age 65? Choice number 1 is to invest $3,000 per year from ages 20 through 26 (a total of seven investments)into an account and then leave it untouched until you are 65 (another 39 years).Choice number 2 is to begin at age 27 and make $3,000 deposits into an investment account every year until you are 65 years old (a total of 39 investments).Each account earns an average of 10% per year.(The investments are end-of-year payments. )

A British consol bond can be considered a type of perpetuity.

If you borrow $5,000 at an annual interest rate of 9.0% for six years,what will your repayment(s)be if this is an interest-only loan?