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

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.

As the number of monthly payments on a loan increases, the size of each payment ________ and the total interest paid over the life of the loan ________.

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?

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.

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?

Harold Hawkins bought a home for $320,000. He made a down payment of $45,000; the balance will be paid off over 30 years at a 6.775% rate of interest. How much will Harold's monthly payments be? Round off to the nearest $1.

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

One characteristic of an annuity is that an equal sum of money is deposited or withdrawn each period.

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?

You are planning to deposit $10,000 today into a bank account. Five years from today you expect to withdraw $7,500. If the account pays 5% interest per year, how much will remain in the account eight years from today? Round to the nearest dollar.

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?

If you put $200 in a savings account at the beginning of each year for 5 years and $300 at the beginning of each year for the next 5 years, how much will be in the account at the end of the 10th year? Assume that the account earns 10%, and round to the nearest $1.00.

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 $1.00.

An investment is expected to yield $300 in three years, $500 in five years, and $300 in seven years. What is the present value of this investment if our opportunity rate is 5%?

Holding all other variables constant, payment per period for an annuity due will be higher than an ordinary annuity.

How much money will be in the account at the end of year 40 (round to the nearest $1.00?

Ordinary annuities assume that cash flows occur

Which of the following statements is true?

The present value of a $100 perpetuity discounted at 5% is $1200.

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?