Exam 5: Time Value of Money

Loan Payments You wish to buy a $30,000 car.The dealer offers you a 4-year loan with a 6 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?

Annuity Interest Rate What is the interest rate of a 4-year,annual $1,000 annuity with present value of $3,500?

Present Value of a Perpetuity A perpetuity pays $100 per year and interest rates are 6.5 percent.How much would its value change if interest rates increased to 9 percent?

Teaser Rate Mortgage A mortgage broker is offering a 30-year mortgage with a teaser rate.In the first two years of the mortgage,the borrower makes monthly payments on only a 5 percent APR interest rate.After the second year,the mortgage interest charged increases to 8 percent APR.What is the effective interest rate in the first two years? What is the effective interest rate after the second year?

After saving diligently your entire career,you and your spouse are ready to retire with a nest egg of $600,000.You need to invest this money in a mix of stocks and bonds that will allow you to earn $5,000 per month for 30 years.What annual interest rate (APR)do you need to earn?

Future Value Given a 6 percent interest rate,compute the year 6 future value of deposits made in years 1,2,3,and 4 of $1,200,$1,400,$1,400,and $1,500.

Future and Present Value of an Annuity Due If you start making $100 monthly contributions today and continue them for five years,what is their future value if the compounding rate is 10 percent APR? What is the present value of this annuity?

Describe how compounding affects the future value computation of an annuity.

Compute the future value in year 12 of a $2,000 deposit in year 3 and another $4,000 deposit at the end of year 5 using a 10 percent interest rate.

When you get your credit card bill,if you make a payment larger than the minimum payment:

A perpetuity,a special form of annuity,pays cash flows:

When you get your credit card bill,it will offer a minimum payment,which:

Effective Annual Rate A loan is offered with monthly payments and a 10 percent APR.What is the loan's effective annual rate (EAR)?

Present Value of Multiple Annuities A small business owner visits his bank to ask for a loan.The owner states that he can repay a loan at $2,000 per month for the next three years and then $1,000 per month for the two years after that.If the bank is charging customers 8.5 percent APR,how much would it be willing to lend the business owner?

Future and Present Value of an Annuity Due If you start making $25 monthly contributions today and continue them for four years,what is their future value if the compounding rate is 6 percent APR? What is the present value of this annuity?

Number of Annuity Payments 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?

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 9 percent on her investments until she retires.How much money does she need to contribute per month to reach her goal?

Present Value of an Annuity Due If the present value of an ordinary,4-year annuity is $1,000 and interest rates are 6 percent,what is the present value of the same annuity due?

What is the amount of interest and repayment of principal balance in month 2 for a loan of $10,000,paid monthly over five years at a 7 percent APR?

Your company borrows $275,000 today to fund its growth initiatives.It must repay the bank in five annual payments of $76,300 at the end of each year.What annual interest rate is your firm paying?