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

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?

You are deciding among several different bank accounts.Which of the following will generate the highest effective annual rate (EAR)?

Payday loans are very short-term loans that charge very high interest rates.You can borrow $550 today and repay $675 in two weeks.What is the compounded annual rate implied by this 22.73 percent rate charged for only two weeks?

Consider that you are 30 years old and have just changed to a new job.You have $91,000 in the retirement plan from your former employer.You can roll that money into the retirement plan of the new employer.You will also contribute $400 each month into your new employer's plan.If the rolled-over money and the new contributions both earn a 7 percent annual return,how much should you expect to have when you retire in 38 years?

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

Level sets of frequent,consistent cash flows are called

Compute the future value in year 4 of a $500 deposit in year 1,and another $1,000 deposit at the end of year 3 using a 5 percent interest rate.

If the present value of an ordinary,10-year annuity is $25,000 and interest rates are 7 percent,what is the present value of the same annuity due?

Ross has decided that he wants to build enough retirement wealth that,if invested at 6 percent per year,will provide him with $2,500 monthly income for 30 years.To date,he has saved nothing,but he still has 20 years until he retires.How much money does he need to contribute per month to reach his goal?

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 2.5 percent APR interest rate.After the second year,the mortgage interest charged increases to 4.25 percent APR.What is the effective interest rate in the first two years? What is the effective interest rate after the second year?

A loan is offered with monthly payments and a 6.5 percent APR.What is the loan's effective annual rate (EAR)?

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?

As a college student,you probably receive many credit card offers in the mail.Consider these two offers.The first card charges a 17 percent APR.An examination of the footnotes reveals that this card compounds daily (365 day year).The second credit card charges 18 percent APR and compounds semiannually.What is the effective annual rate of the cheaper card?

A perpetuity pays $50 per year and interest rates are 9 percent.How much would its value change if interest rates decreased to 6 percent?

Assume that you contribute $100 per month to a retirement plan for 20 years.Then you are able to increase the contribution to $200 per month for another 20 years.Given a 6 percent interest rate,what is the value of your retirement plan after 40 years?

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.