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

Ronald Slump purchased a real estate investment with the following end-of-year cash flows: What is the present value of these cash flows if the appropriate discount rate is 20%?

How much would an investor be willing to pay today for an investment that returns $1,000 every year at year-end for five years if he wants to earn a 10% annual return on the investment?

Recently you borrowed money for a new car.The loan amount is $15,000 to be paid back in equal annual payments which begin today,and will continue to be payable at the beginning of each year for a total of five years.Interest on the loan is 8%.What is the amount of the loan payment?

You have borrowed $70,000 to buy a sports car.You plan to make monthly payments over a 15-year period.The bank has offered you a 9% interest rate compounded monthly.Calculate the total amount of interest dollars you will pay the bank over the life of the loan.Round to the nearest dollar and assume end-of-month payments.

If your opportunity cost is 12%,how much will you pay for a bond that pays $100 per year forever?

What is the value on 1/1/05 of the following cash flows? Use a 10% discount rate,and round your answer to the nearest $10.

If you have $20,000 in an account earning 8% annually,what constant amount could you withdraw each year and have nothing remaining at the end of five years?

How much money must you pay into an account at the beginning of each of five years in order to have $5,000 at the end of the fifth year? Assume that the account pays 12% per year,and round to the nearest $10.

You are thinking of buying a miniature golf course.It is expected to generate cash flows of $40,000 per year in years one through four and $50,000 per year in years five through eight.If the appropriate discount rate is 10%,what is the present value of these cash flows?

Suppose that you wish to save for your child's college education by opening up an educational IRA.You plan to deposit $100 per month into the IRA for the next 18 years.Assume that you will be able to earn 10%,compounded monthly,on your investment.How much will you have accumulated at the end of 18 years?

How much money must you pay into an account at the beginning of each of 20 years in order to have $10,000 at the end of the 20th year? Assume that the account pays 12% per annum,and round to the nearest $1.

An investment will pay $500 in three years,$700 in five years,and $1,000 in nine years.If the opportunity rate is 6%,what is the present value of this investment?

If you put $310 in a savings account at the beginning of each year for 10 years,how much money will be in the account at the end of the 10th year? Assume that the account earns 5.5%,and round to the nearest $100.

If a loan of $10,000 is paid back in equal annual end-of-year payments of $2,570.69 during the next five years,what is the annual interest rate on the loan?

You wish to borrow $2,000 to be repaid in 12 monthly installments of $189.12.The annual interest rate is:

What is the value (price)of a bond that pays $400 semiannually for 10 years and returns $10,000 at the end of 10 years? The market discount rate is 10% paid semiannually.

A perpetuity is an investment that continues forever but pays a different dollar amount each year.

Francis Peabody just won the $89,000,000 California State Lottery.The lottery offers the winner a choice of receiving the winnings in a lump sum or in 26 equal annual installments to be made at the beginning of each year.Assume that funds would be invested at 7.65%.Francis is trying to decide whether to take the lump sum or the annual installments.What is the amount of the lump sum that would be exactly equal to the present value of the annual installments? Round off to the nearest $1.

As time increases for an amortized loan,the ________ decreases.

What is the present value of the following uneven stream of cash flows? Assume a 6% discount rate and end-of-period payments.Round to the nearest whole dollar.