Exam 5: The Time Value of Money

A zero coupon bond pays no annual coupon interest payments.When it matures at the end of 8 years it pays out $1,000.If investors wish to earn 7.5% per year on this bond investment,what is the current price of the bond?

Betty borrows $60,000 at 12 percent compounded annually.The loan is to be repaid in five equal annual end-of-year installments.How much must each loan payment be?

Last National Bank is offering you a loan at 10%; payments on the loan are to be made monthly.Credit Onion is offering you a loan where payments are to be made semi-annually; the rate on the loan is also 10%.Local Bank down the street is also offering a loan at 10% where the payments are made quarterly.Which loan has the lowest annual cost?

The present value of a deferred annuity .

If you put $10,000 in an investment that returns 11 percent compounded monthly what would you have after 10 years (round to nearest $1)?

Bill borrowed $100,000 today that he must repay in 15 annual end-of-year installments of $10,000.What annual interest rate is Bill paying on his loan?

Tim has $100 in a bank account paying 2% interest per year.At the end of 5 years,Tim's bank account balance will be $110 if interest is not compounded,but will be greater than $110 if interest is compounded.

How much money must be put into a bank account yielding 3.5% (compounded annually)in order to have $1,250 at the end of 10 years (round to nearest $1)?

Assuming two investments have equal lives,a high discount rate tends to favor

Your daughter is born today and you want her to be a millionaire by the time she is 35 years old.open an investment account that promises to pay 12% per year.How much money must you deposit today so your daughter will have $1,000,000 by her 35th birthday?

You won the lottery and can receive either (1)$60,000 today,or (2)$10,000 one year from today plus $25,000 two years from today plus $35,000 three years from today.You plan to use the money to pay for your child's college education in 15 years.You should

Auto Loans R Them loans you $24,000 for four years to buy a car.The loan must be repaid in 48 equal monthly payments.The annual interest rate on the loan is 9 percent.What is the monthly payment?

You inherit $300,000 from your parents and want to use the money to supplement your retirement.You receive the money on your 65^th birthday,the day you retire.You want to withdraw equal amounts at the end of each of the next 20 years.What constant amount can you withdraw each year and have nothing remaining at the end of 20 years if you are earning 7% interest per year?

You want $20,000 in 5 years to take your spouse on a second honeymoon.Your investment account earns 7% compounded semiannually.How much money must you put in the investment account today? (round to the nearest $1).

How much money do I need to place into a bank account that pays a 6% rate in order to have $500 at the end of 7 years?

An example of an annuity is the interest received from bonds.

If the interest rate is positive,then the present value of an annuity due will be less than the present value of an ordinary annuity.

When repaying an amortized loan,the interest payments increase over time due to the compounding process.

In order to send your first child to Law School when the time comes,you want to accumulate $40,000 at the end of 18 years.Assuming that your savings account will pay 6% compounded annually,how much would you have to deposit if: A)You want to deposit an equal amount at the end of each year? B)You want to deposit one large lump sum today?

An investment is expected to yield $300 in three years,$500 in five years,and $300 in seven years.What is the present value of this investment if our opportunity rate is 5%?