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

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?

You started your first job after graduating from college. Your company offers a retirement plan for which the company contributes 50 percent of what you contribute each year. You expect to contribute $2,000 per year from your salary. You decide to invest the contributions in assets that you expect to earn 10 percent per year. If you plan to retire in 40 years, how big will you expect that retirement account to be?

Assume that you contribute $100 per month to a retirement plan for 20 years. Then you are able to increase the contribution to $200 per month for another 20 years. Given a 6 percent interest rate, what is the value of your retirement plan after 40 years?

Phoebe realizes that she has charged too much on her credit card and has racked up $10,000 in debt. If she can pay $300 each month and the card charges 18 percent APR (compounded monthly), how long will it take her to pay off the debt?

When computing the future value of an annuity, the higher the compound frequency

If the future value of an ordinary, 7-year annuity is $10,000 and interest rates are 4 percent, what is the future value of the same annuity due?

Given a 4 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,400.

Given a 7 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,500, and $1,500.

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?

Which of the following statements is correct?

Isaac realizes that he charged too much on his credit card and has racked up $5,000 in debt. If he can pay $225 each month and the card charges 17.55 percent APR (compounded monthly), how long will it take him to pay off the credit card?

If the future value of an ordinary, 11-year annuity is $5,575 and interest rates are 5.5 percent, what is the future value of the same annuity due?

What is the future value of an $800 annuity payment over 15 years if the interest rates are 6 percent?

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 6 percent interest rate, what are the monthly payments?

You deposit $1,000 today and want to save $100 each month beginning one month from today. Your account earns a 5 percent annual interest rate. How long will it take you to accumulate $5,000?

As a college student, you probably receive many credit card offers in the mail. Consider these two offers. The first card charges a 17 percent APR. An examination of the footnotes reveals that this card compounds monthly. The second credit card charges 16.25 percent APR and compounds weekly. What is the effective annual rate of the cheaper card?

A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $1,500 per month for the next 3 years and then $500 per month for three years after that. If the bank is charging customers 10 percent APR, how much would it be willing to lend the business owner?

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?

Your company borrows $75,000 today to fund its growth initiatives. It must repay the bank in four annual payments of $26,600 at the end of each year. What annual interest rate is your firm paying?

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?