Exam 4: Future Value, Present Value, and Interest Rates

Historically, many cultural groups have outlawed usury, or the practice of levying interest on loans.Some groups oppose usury because it exacerbates problems of income inequality (as wealthier individuals can afford to lend to poorer individuals), while others claim investment and loans should be made charitably.Evaluate these arguments against usury based on your knowledge of present value.Do such prohibitions make sense?

A borrower is offered a choice between a fixed rate mortgage and a variable rate mortgage.The fixed rate mortgage may be more attractive if the borrower expects:

An investment grows from $100.00 to $150.00 or 50% over five years.What annual increase gives a 50% increase over five years?

How has Islamic banking redefined lending to deal with Islam's prohibition of usury?

Compute the interest rate for a $1,000 face value a bond that sells for $280 and matures in 20 years.The bond has no coupon payments, only the face value payment.

The future value of $100 at a 5% per year interest rate at the end of one year is:

Suppose a family wants to save $60,000 for a child's tuition.The child will be attending college in 18 years.For simplicity, assume the family is saving for a one-time college tuition payment.If the interest rate is 6%, then about how much does this family need to deposit in the bank today?

What will be the amount owed at the end of one year if a borrower charges $100 on his/her credit card and doesn't make any payments during the year (assume the interest rate is 1.5% per month)?

Which investment plan will provide the highest future value: $500 invested at 5 percent annually for four years and then that balance invested at 7 percent annually for an additional three years, or $500 invested at 6 percent annually for seven years?

Doubling the future value will cause:

Suppose you negotiate a one-year loan with a principal of $1000 and the nominal interest rate is currently 7%.You expect the inflation rate to be 3% over the next year.When you repay the principal plus interest at the end of the year, the actual inflation rate is 2.5%.Compute the ex ante and ex post real interest rate.Who benefits from this unexpected decrease in inflation? Who loses?

Mary deposits funds into a CD at her bank.The CD has an annual interest of 4.0%.If Mary leaves the funds in the CD for two years she will have $540.80.What amount is Mary depositing?

The value of $100 left in a certificate of deposit for four years that earns 4.5% annually will be:

Farou invests $2,000 at 8% interest.About how long will it take for Farou to double his investment ?

If a borrower and a lender agree on a long-term loan at a nominal interest rate that is fixed over the duration of the loan, how will a higher-than-expected rate of inflation impact the parties if at all?

Briefly discuss the relationship between present value and each of the following: a) future value b) time c) interest rate

The shorter the time until a payment:

At any fixed interest rate, an increase in time, n, until a payment is made:

Which of the following best expresses the payment a lender receives for lending money for three years?

A borrower who makes a $1000 loan for one year and earns interest in the amount of $75, earns what nominal interest rate and what real interest rate if inflation is two percent?