Exam 6: The Time Value of Money-Annuities and Other Topics

What is the present value of an annuity of $100 received at the end of each year for seven years? The first payment will be received one year from today (round to nearest $10).The discount rate is 13%.

If you have an opportunity cost of 10%,how much must you invest each year to have $4,000 accumulated in 10 years?

Horace and Myrtle want to buy a house.Their banker offered them a fully amortizing $95,000 loan at a 12% annual rate for 20 years.What will their monthly payment be if they make equal monthly installments over the next 20 years?

If you invest $750 every six months at 8% compounded semi-annually,how much would you accumulate at the end of 10 years?

A friend of yours plans to begin saving for retirement by depositing $2,000 at the end of each year for the next 25 years.If she can earn 10% annually on her investment,how much will she have accumulated at the end of 25 years?

A bond paying interest of $120 per year forever is an example of a perpetuity.

An amortized loan is a loan paid in unequal installments.

You are saving money to buy a house.You will need $7,473.50 to make the down payment.If you can deposit $500 per month in a savings account which pays 1% per month,how long will it take you to save the $7,473.50?

You are considering purchasing common stock in AMZ Corporation.You anticipate that the company will pay dividends of $5.00 per share next year and $7.50 per share in the following year.You also believe that you can sell the common stock two years from now for $30.00 per share.If you require a 14% rate of return on this investment,what is the maximum price that you would be willing to pay for a share of AMZ common stock?

George and Barbara will be retiring in four years and would like to buy a lake house.They estimate that they will need $150,000 at the end of four years to buy this house.They want to make four equal annual payments into an account at the end of each year.If they can earn 16% on their money,compounded annually,over the next four years,how much must they invest at the end of each year for the next four years to have accumulated $150,000 by retirement?

You have just received an endowment of $32,976.You plan to put the entire amount in an account earning 8 percent compounded annually and to withdraw $4000 at the end of each year.How many years can you continue to make the withdrawals?

What is a series of equal payments to be received at the end of each period,for a finite period of time,called?

You intend to purchase your dream PC upon graduation in two years.It will have a cost of $2,975,including all attachments and sales tax.You just received a $3,000 pre-graduation gift from your rich uncle that you intend to deposit in a money market account that pays 6% interest,compounded monthly.How much of your pre-graduation gift will you need to deposit in order to have $2,975 available for the purchase of the PC upon graduation?

Ingrid Birdman can earn a nominal annual rate of return of 12%,compounded semiannually.If Ingrid made 40 consecutive semiannual deposits of $500 each,with the first deposit being made today,how much will she accumulate at the end of Year 20? Round off to the nearest $1.

When repaying an amortized loan,the interest payments increase over time.

Jay Coleman just graduated.He plans to work for five years and then leave for the Australian "Outback" country.He figures that he can save $3,500 a year for the first three years and $5,000 a year for the next two years.These savings will start one year from now.In addition,his family gave him a $2,500 graduation gift.If he puts the gift,and the future savings when they start,into an account that pays 7.75% compounded annually,what will his financial "stake" be when he leaves for Australia five years from now? Round off to the nearest $1.

Congratulations.You just won the California State Lottery.The amount awarded is paid in 20 equal annual installments,at the beginning of each year.You can invest your money at 6.6%,compounded annually.You have calculated that the lottery is worth $20,975,400 today.How much was the amount awarded?

Your investment goal is to have $3,000,000 in 40 years for retirement.You decide to invest in a mutual fund today that pays 12% per year compounded monthly.How much must you invest at the end of each month to meet your investment goal? Round to the nearest $1.

How much must you deposit at the end of each of the next 10 years in a savings account paying 5% annually in order to have $10,000 saved by the end of the 10th year?

Michael Bilkman has an opportunity to buy a perpetuity that pays $24,350 annually.His required rate of return on this investment is 14.25%.At what price would Michael be indifferent to buying or not buying the investment? Round off to the nearest $1.