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

You have just purchased a car from Friendly Sam.The selling price of the car is $6,500.If you pay $500 down,then your monthly payments are $317.22.The annual interest rate is 24%.How many payments must you make?

a. )If Sparco,Inc.deposits $150 at the end of each year for the next eight years in an account that pays 5% interest,how much money will Sparco have at the end of eight years? b. )Suppose Sparco decides that they need to have $5,300 at the end of the eight years.How much will they have to deposit at the end of each year?

When comparing annuity due to ordinary annuities,annuity due annuities will have higher:

What is the present value of the following perpetuities? a.$600 discounted at 7% b.$450 discounted at 12% c.$1,000 discounted at 6% d.$880 discounted at 9%

If you put $10 in a savings account at the beginning of each year for 11 years,how much money will be in the account at the end of the 11th year? Assume that the account earns 11%,and round to the nearest $100.

It is January 1st and Darwin Davis has just established an IRA (Individual Retirement Account).Darwin will put $1,000 into the account on December 31st of this year and at the end of each year for the following 39 years (40 years total).How much money will Darwin have in his account at the beginning of the 41st year? Assume that the account pays 12% interest compounded annually,and round to the nearest $1,000.

In order to send your oldest child to law school when the time comes,you want to accumulate $40,000 at the end of 18 years.Assuming that your savings account will pay 6% compounded annually,how much would you have to deposit if: a.you want to deposit an amount annually at the end of each year? b.you want to deposit one large lump sum today?

Your parents are planning to retire in Phoenix,AZ in 20 years.Currently,the typical house that pleases your parents costs $200,000,but they expect inflation to increase the price of the house at a rate of 4% over the next 20 years.In order to buy a house upon retirement,what must they save each year in equal annual end-of-year deposits if they can earn 10% annually?

A compound annuity involves depositing or investing a single sum of money and allowing it to grow for a certain number of years.

Consider an investment that has cash flows of $500 the first year and $400 for the next four years.If your opportunity cost is 10%,how much is this investment worth to you?

SellUCars,Inc.offers you a car loan at an annual interest rate of 8% compounded quarterly.What is the annual percentage yield of the loan?

What is the present value of an investment that pays $10,000 every year at year-end for the next five years and $15,000 every year at year-end for years six through 10? The annual rate of interest for the investment is 9%.

To repay a $2,000 loan from your bank,you promise to make equal payments every six months for the next five years totaling $3,116.20.What annual rate of interest will you be paying?

A retirement plan guarantees to pay you or your estate a fixed amount for 20 years.At the time of retirement,you will have $31,360 to your credit in the plan.The plan anticipates earning 8% interest annually over the period you receive benefits.How much will your annual benefits be,assuming the first payment occurs one year from your retirement date?

Which of the following statements is true?

How much money must you pay into an account at the beginning of each of 11 years in order to have $5,000 at the end of the 11th year? Assume that the account pays 8% per year,and round to the nearest $1.

You have just purchased an investment that generates the cash flows that are shown below.You are able to invest your money at 5.75%,compounded annually.How much is this investment worth today?

If you have $375,000 in an account earning 9% annually,what constant amount could you withdraw each year and have nothing remaining at the end of 20 years?

Your rich great,great aunt just passed away at the age of 91.She liked you more than she let on and left you in her will.You will receive 100 British bonds that pay interest forever.The amount of annual interest payments that you will receive is $5,000.If you could invest your money at 4.25%,how much are these bonds worth today?

How much will you receive at the end of the 41st year (i.e. ,the first annuity payment)? Round to the nearest $100.