Exam 5: Time Value of Money

Future Value Given an 8 percent interest rate,compute the year 7 future value if deposits of $1,500 and $2,500 are made in years 2 and 3,respectively,and a withdrawal of $2,000 is made in year 5.

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?

What is the present value of a $1,100 payment made every year forever when interest rates are 4.5 percent?

Number of Annuity Payments Joey realizes that he has charged too much on his credit card and has racked up $3,000 in debt.If he can pay $150 each month and the card charges 18 percent APR (compounded monthly),how long will it take him to pay off the debt?

Jasmine has decided that she wants to build enough retirement wealth that,if invested at 6 percent per year,will provide her with $3,000 of monthly income for 30 years.To date,she has saved nothing but she still has 25 years until she retires.Jasmine believes that she can earn 6 percent on her investments until she retires.How much money does she need to contribute per month to reach her goal?

The simple form of an annualized interest rate is called the annual percentage rate (APR).The effective annual rate (EAR)is a:

Future Value of Multiple Annuities Assume that you contribute $200 per month to a retirement plan for 15 years.Then you are able to increase the contribution to $400 per month for another 25 years.Given a 5 percent interest rate,what is the value of your retirement plan after 40 years?

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 $4,000 per year from your salary.You decide to invest the contributions in assets that you expect to earn 8 percent per year.If you plan to retire in 35 years,how big will you expect that retirement account to be?

To compute the present or future value of an annuity due,one computes the value of an ordinary annuity and then:

What is the future value of a $500 annuity payment over eight years if interest rates are 14 percent?

Present Value Given a 5 percent interest rate,compute the present value of deposits made in years 1,2,3,and 4 of $1,000,$1,400,$1,400,and $1,500.

Present Value What is the present value of a $250 deposit in year 1 and another $50 deposit at the end of year 6 if interest rates are 10 percent?

Number of Annuity Payments Phoebe realizes that she has charged too much on her credit card and has racked up $7,000 in debt.If she can pay $200 each month and the card charges 17 percent APR (compounded monthly),how long will it take her to pay off the debt?

Loan Payments You wish to buy a $20,000 car.The dealer offers you a 3-year loan with an 8 percent APR.What are the monthly payments? How would the payment differ if you paid interest only? What would the consequences of such a decision be?

Your firm needs to buy additional physical therapy equipment that costs $27,000.The equipment manufacturer will give you the equipment now if you will pay $7,000 per year for the next five years.Assume your firm can borrow at a 13 percent interest rate.You need to analyze if your firm should pay the manufacturer the $27,000 now or accept the five-year annuity offer of $7,000.Which of the following statements is correct?

When interest rates are lower,borrowers can:

Due to poor spending habits,Ricky has accumulated $5,000 in credit card debt.He has missed several payments and now the annual interest rate on the card is 16.75 percent! If he pays $200 per month on the card,in total,how much interest expense does Ricky pay to the credit card company?

Future Value and Annuity Payments Chandler and Monica are trying to decide if they will have enough money to retire early in 15 years,at age 60.Their current assets are $250,000 in retirement plans and they have $80,000 in other investments.Together,they contribute $30,000 per year to their retirement plans and another $6,000 to other investments.If their assets grow at 9 percent per year,how much money will they have when they turn 60? After they retire,they will invest their wealth more conservatively and it will earn 6 percent per year.Is this enough to fund a $150,000 per year retirement for 30 years?

Loan amortization schedules show:

Present Value of an Annuity What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?