Exam 4: The Time Value of Money

Use the following information to answer the question(s)below. Consider the following four alternatives: 1.$132 received in two years. 2.$160 received in five years. 3.$200 received in eight years. 4.$220 received in ten years. -The ranking of the four alternatives from most valuable to least valuable if the interest rate is 7% per year would be:

Taggart Transcontinental currently has a bank loan outstanding that requires it to make three annual payments at the end of the next three years of $1,000,000 each.The bank has offered to allow Taggart Transcontinental to skip making the next two payments in lieu of making one large payment at the end of the loan's term in three years.If the interest rate on the loan is 6%,then the final payment that the bank will require to make Taggart Transcontinental indifferent between the two forms of payments is closest to:

Kampgrounds Inc.is considering purchasing a parcel of wilderness land near a popular historic site.Although this land will cost Kampgrounds $400,000 today,by renting out wilderness campsites on this land,Kampgrounds expects to make $35,000 at the end of every year indefinitely.If the appropriate discount rate is 8%,then the NPV of this new wilderness campsite is closest to:

Henry Rearden is saving for retirement and has determined that to live comfortably he must save $3 million by his 65th birthday.Henry just turned 30 today,and he has decided that starting today and continuing on every birthday up to and including his 65th birthday,he will deposit the same amount into an individual retirement account (IRA).If Henry can earn 8% on his IRA,then the amount he must set aside each year to make sure that he will have $3 million in his account on his 65th birthday is closest to:

Use the information for the question(s)below. Assume that you are 30 years old today,and that you are planning on retirement at age 65.Your current salary is $45,000 and you expect your salary to increase at a rate of 5% per year as long as you work.To save for your retirement,you plan on making annual contributions to a retirement account.Your first contribution will be made on your 31st birthday and will be 8% of this year's salary.Likewise,you expect to deposit 8% of your salary each year until you reach age 65.Assume that the rate of interest is 7%. -The future value at retirement (age 65)of your savings is:

Use the information for the question(s)below. Suppose that a young couple has just had their first baby and they wish to ensure that enough money will be available to pay for their child's college education.Currently,college tuition,books,fees,and other costs,average $12,500 per year.On average,tuition and other costs have historically increased at a rate of 4% per year. -Assume that college costs continue to increase an average of 4% per year and that all her college savings are invested in an account paying 7% interest.Draw a timeline that details the amount of money she will need to have in the future four each of her four years of her undergraduate education.

You are looking for a new truck and see the following advertisement."Own a new truck! No money down.Just five easy annual payments of $8000." You know that you can get the same truck from the dealer across town for only $31,120.The interest rate for the deal advertised is closest to:

Consider the following timeline: If the current market rate of interest is 9%,then the present value of this timeline as of year 0 is closest to:

Assuming that college costs continue to increase an average of 4% per year and that all her college savings are invested in an account paying 7% interest,then the amount of money she will need to have available at age 18 to pay for all four years of her undergraduate education is closest to:

You are interested in purchasing a new automobile that costs $35,000.The dealership offers you a special financing rate of 6% APR (0.5%)per month for 48 months.Assuming that you do not make a down payment on the auto and you take the dealer's financing deal,then your monthly car payments would be closest to:

Which of the following is NOT a valid time value of money function in Excel?

If the current rate of interest is 8% APR,then the future value of an investment that pays $250 per quarter and lasts 20 years is closest to:

Which of the following statements regarding growing annuities is FALSE?

You are saving for retirement.To live comfortably,you decide that you will need $2.5 million dollars by the time you are 65.If you assume you are able to do that,and will live 20 more years (until age 85),the amount you can withdraw in each of those years at an interest rate of 5% before your retirement fund is empty is closest to:

Consider a growing perpetuity that will pay $100 in one year.Each year after that,you will receive a payment on the anniversary of the last payment that is 6% larger than the last payment.This pattern of payments will continue forever.If the interest rate is 11%,then the value of this perpetuity is closest to:

Consider the following timeline: If the current market rate of interest is 8%,then the value of the cash flows as of year 1 is closest to:

At an annual interest rate of 7%,the future value of this timeline in year 2 is closest to:

At an annual interest rate of 7%,the future value of $5000 in five years is closest to:

The amount of money that would be in the account if you left the money there until your 65th birthday is closest to:

You have an $8000 balance on your credit card,which charges 12% interest annually (1% per month).If you can afford to pay $100 per month,how many months will it take to pay the credit card in full?