Exam 5: Time Value of Money 2: Analyzing Annuity Cash Flows

When saving for future expenditures, we can add the ________ of contributions over time to see what the total will be worth at some point in time.

A local furniture store is advertising a deal in which you buy a $3,500 living room set with three years before you need to make payments (no interest is incurred). How much would you have to deposit each month in a savings account earning 3.5 percent APR, compounded monthly, to be able to pay the $3,500 bill in three years?

Bill makes $100 payments at the end of each year for 5 years. If interest rates are 8%, what is the present value of this annuity stream?

Given a 7 percent interest rate, compute the year 8 future value of deposits made in years 1, 2, 3, and 4 of $750, $1,200, $500, and $250.

Your company borrows $55,000 today to fund its growth initiatives. It must repay the bank in four annual payments of $17,100 at the end of each year. What annual interest rate is your firm paying?

Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?

Compute the future value in year 12 of a $2,000 deposit in year 3 and another $4,000 deposit at the end of year 5 using a 10 percent interest rate.

A perpetuity pays $250 per year and interest rates are 5.5 percent. How much would its value change if interest increased to 8.5 percent? Did the value increase or decrease?

If you start making $90 monthly contributions today and continue them for ten years, what is their future value if the compounding rate is 6 percent APR? What is the present value of this annuity?

What is the present value of a $775 annuity payment over six years if interest rates are 11 percent?

What is the interest rate of a 6-year, annual $10,000 annuity with a present value of $40,000?

A small business owner visits his bank to ask for a loan. The owner states that he can repay a loan at $1,500 per month for the next three years and then $500 per month for the two years after that. If the bank is charging customers 5.5 percent APR, how much would it be willing to lend the business owner?

What is the interest rate of a 6-year, annual $3,000 annuity with present value of $14,000?

Your 30-year $95,000 mortgage calls for payments to be made at the end of each month. The loan has a 5.85 percent annual interest rate. What is the remaining balance after five years?

If the future value of an ordinary, 5-year annuity is $100,000 and interest rates are 5 percent, what is the future value of the same annuity due?

You have reviewed your budget and determine that the most you can afford on a car loan is $375 per month. What is the most you can borrow if interest rates are 8 percent and you can pay the loan over five years?

After saving diligently your entire career, you and your spouse are ready to retire with a nest egg of $500,000. You need to invest this money in a mix of stocks and bonds that will allow you to earn $4,000 per month for 30 years. What annual interest rate (APR) do you need to earn?

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. Assume you get a 15-year mortgage with a 6 percent interest rate. If the house appreciates at a 2 percent rate per year, what will be the value of the house in seven years? How much of this value is equity?

If the present value of an ordinary, 8-year annuity is $12,500 and interest rates are 9.1 percent, what is the present value of the same annuity due?

Which of the following will increase the present value of an annuity?