Exam 5: Time Value of Money 2: Analyzing Annuity Cash Flows

Your client has been given a trust fund valued at $1 million.She cannot access the money until she turns 68 years old,which is in 12 years.At that time,she can withdraw $30,000 per month.If the trust fund is invested at a 7 percent interest rate,how many months will it last your client once she starts to withdraw the money?

Isaac realizes that he charged too much on his credit card and has racked up $7,000 in debt.If he can pay $275 each month and the card charges 17.55 percent APR (compounded monthly),how long will it take him to pay off the credit card? How much interest expense will Isaac pay during this time?

A car company is offering a choice of deals.You can receive $600 cash back on the purchase,or a 2 percent APR,4-year loan.The price of the car is $18,900 and you could obtain a 4-year loan from your credit union at 6 percent APR.What is the monthly payment of each deal?

Joey realizes that he has charged too much on his credit card and has racked up $4,000 in debt.If he can pay $200 each month and the card charges 20 percent APR (compounded monthly),how long will it take him to pay off the debt?

You have reviewed your budget and determine that the most you can afford on a car loan is $550 per month.What is the most you can borrow if interest rates are 6 percent and you can pay the loan over three years?

Which of the following will increase the future value of an annuity?

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?

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?

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?

Compute the future value in year 10 of a $1,000 deposit in year 1,and another $1,500 deposit at the end of year 4 using an 8 percent interest rate.

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?

Paige has decided that she wants to build enough retirement wealth that,if invested at 5 percent per year,will provide her with $2,500 monthly income for 20 years.To date,she has saved nothing,but she still has 40 years until she retires.How much money does she need to contribute per month to reach her goal?

What is the present value of a $775 annuity payment over six years if interest rates are 11 percent?

A furniture company is offering a choice of deals.You can receive $500 cash back on the purchase,or a 3 percent APR,2-year loan.The price of the dining room set is $5,000 and you could obtain a 2-year loan from your credit union at 4 percent APR.What is the cost per month of each deal?

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?

A small business owner visits his bank to ask for a loan.The owner states that she can repay a loan at $1,250 per month for the next three years and then $500 per month for two years after that.If the bank is charging customers 12 percent APR,how much would it be willing to lend the business owner?

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

A perpetuity pays $250 per year and interest rates are 8.5 percent.How much would its value change if interest decreased to 5.5 percent? Did the value increase or decrease?

Given a 4 percent interest rate,compute the present value of deposits made in years 1,2,3,and 4 of $1,000,$1,200,$1,200,and $1,400.

What is the present value of a $600 annuity payment over 4 years if interest rates are 6 percent?