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

What is a series of equal payments for a finite period of time called?

All else constant,an individual would be indifferent between receiving $2,000 today or receiving a $200 perpetuity when the discount rate is 10% annually.

You are going to pay $800 into an account at the beginning of each of 20 years.The account will then be left to compound for an additional 20 years.At the end of the 41st year you will begin receiving a perpetuity from the account.If the account pays 14%,how much will you receive each year from the perpetuity (round to 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?

You are considering a home loan with monthly payments at an annual percentage yield of 5.116%.What is the quoted rate of interest on the loan?

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

You have decided to invest $500 in a mutual fund today and make $500 end-of-the-year investments in the fund each year until you retire for 40 years.Assuming an opportunity cost of 12%,what do you estimate that you will have in this account at retirement?

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?

You want to travel to Europe to visit relatives when you graduate from college three years from now.The trip is expected to cost a total of $10,000.Your parents have deposited $5,000 for you in a CD paying 6% interest annually,maturing three years from now.Aunt Hilda has agreed to finance the balance.If you are going to put Aunt Hilda's gift in an investment earning 10% annually over the next three years,how much must she deposit now so you can visit your relatives in three years?

What is the present value of an annuity of $27 received at the beginning of each year for the next six years? The first payment will be received today,and the discount rate is 10% (round to nearest $10).

An amortized loan is a loan paid in unequal installments.

The present value of a perpetuity decreases when the ________ decreases.

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?

What is the present value of an annuity of $12 received at the end of each year for seven years? Assume a discount rate of 11%.The first payment will be received one year from today (round to the nearest $1).

You have just purchased a share of preferred stock for $50.00.The preferred stock pays an annual dividend of $5.50 per share forever.What is the rate of return on your investment?

You have been accepted to study gourmet cooking at Le Cordon Bleu Culinary Institute in Paris,France.You will need $15,000 every six months (beginning six months from now)for the next three years to cover tuition and living expenses.Mom and Dad have agreed to pay for your education.They want to make one deposit now in a bank account earning 6% interest,compounded semiannually,so that you can withdraw $15,000 every six months for the next three years.How much must they deposit now?

George and Laura will be retiring in four years and would like to buy a lake house.They estimate that they will need $550,000 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 8% 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 $550,000 by retirement?

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

What is the present value of $150 received at the beginning of each year for 16 years? The first payment is received today.Use a discount rate of 9%,and round your answer to the nearest $10.

Use the following information in solving the following question(s). You are going to pay $100 into an account at the beginning of each of the next 40 years.At the beginning of the 41st year,you buy a 30-year annuity whose first payment comes at the end of the 41st year (the account pays 12%). -How much will you receive at the end of the 41st year (i.e. ,the first annuity payment)? Round to the nearest $100.