Question 1

You have been depositing money at the end of each year into an account drawing 8% interest.What is the balance in the account at the end of year four if you deposited the following amounts?
Year End of Year Deposit
1 $350
2 $500
3 $725
4 $400

Accepted Answer

A) $1,622 
B) $2,207 
C) $2,384 
D) $2,687

Question 2

The present value of a complex cash flow stream is equal to the sum of the present values of each of the cash flows.

Accepted Answer

A) True 
 B)False

Question 3

Your company has received a $50,000 loan from an industrial finance company.The annual payments are $6,202.70.If the company is paying 9% interest per year,how many loan payments must the company make?

Accepted Answer

A) 15 
B) 13 
C) 12 
D) 19

Question 4

The expected after-tax cash flow from an investment property that you are considering is
Year 1 $25,000
Year 2 $27,500
Year 3 $30,250
At the end of year 3 you expect to sell the property for $400,000.If the appropriate discount rate is 12%,what is the most you should pay for this property?

Accepted Answer

The answer of The expected after-tax cash flow from an...

Question 5

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?

Accepted Answer

A) $64,480 
B) $197,250 
C) $250,000 
D) $117,647 
E) $55,000

Question 6

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?

Accepted Answer

A) $75,310,294 
B) $36,000,000 
C) $81,047,770 
D) $42,000,000

Question 7

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

Accepted Answer

A) $10,065 
B) $10,193 
C) $22,334 
D) $21,731

Question 8

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.

Accepted Answer

A) $93,000 
B) $766,000 
C) $767,000 
D) $850,000

Question 9

If you put $200 in a savings account at the beginning of each year for 10 years and then allow the account to compound for an additional 10 years,how much will be in the account at the end of the 20th year? Assume that the account earns 10%,and round to the nearest $10.

Accepted Answer

A) $8,300 
B) $9,100 
C) $8,900 
D) $9,700

Question 10

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.

Accepted Answer

A) $700 
B) $257 
C) $300 
D) $278

Question 11

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

Accepted Answer

A) 24%. 
B) 8%. 
C) 18%. 
D) 12%.

Question 12

A friend of yours would like you to lend him $5,000 today to be paid back in 5 annual payments.What would be the equal annual end-of-year payment on this loan if you charge your friend 7% interest?

Accepted Answer

A) $869.45 
B) $1,000.00 
C) $1,219.51 
D) $1,350.00

Question 13

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.

Accepted Answer

A) $1,195 
B) $111 
C) $124 
D) $139

Question 14

Gina Dare,who wants to be a millionaire,plans to retire at the end of 40 years.Gina's plan is to invest her money by depositing into an IRA at the end of every year.What is the amount that she needs to deposit annually in order to accumulate $1,000,000? Assume that the account will earn an annual rate of 11.5%.Round off to the nearest $1.

Accepted Answer

A) $1,497 
B) $5,281 
C) $75 
D) $3,622

Question 15

What is the present value of $27 received at the end of each year for five years? Assume a discount rate of 9%.The first payment will be received one year from today (round to the nearest $1).

Accepted Answer

A) $42 
B) $114 
C) $88 
D) $105

Question 16

You wish to purchase a condo at a cost of $175,000.You are able to make a down payment of $35,000 and will borrow $140,000 for 30 years at an interest rate of 7.25%.How much is your monthly payment? To solve this problems with an EXCEL spreadsheet,you would enter

Accepted Answer

A) =PMT(7.25/12,360,140000,0,1) 
B) =PMT(.0725/12,360,140000,0,1) 
C) =PMT(7.25,30,140000,0,1)/12 
D) =PMT(.0725/12,360,175000,0,1)

Question 17

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?
Year Amount
0 $0
1 $1,250
2 $1,585
3 $1,750
4 $2,225
5 $3,450

Accepted Answer

A) $7,758 
B) $4,521 
C) $10,260 
D) $8,467

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

A loan amortization schedule provides a breakdown of loan payments into principal and interest payments.

Accepted Answer

A) True 
 B)False

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

You have been depositing money at the end of each year into an account drawing 8% interest.What is the balance in the account at the end of year four if you deposited the following amounts? Year End of Year Deposit 1 $350 2 $500 3 $725 4 $400

The present value of a complex cash flow stream is equal to the sum of the present values of each of the cash flows.

Your company has received a $50,000 loan from an industrial finance company.The annual payments are $6,202.70.If the company is paying 9% interest per year,how many loan payments must the company make?

The expected after-tax cash flow from an investment property that you are considering is Year 1 $25,000 Year 2 $27,500 Year 3 $30,250 At the end of year 3 you expect to sell the property for $400,000.If the appropriate discount rate is 12%,what is the most you should pay for this property?

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?

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

If you put $200 in a savings account at the beginning of each year for 10 years and then allow the account to compound for an additional 10 years,how much will be in the account at the end of the 20th year? Assume that the account earns 10%,and round to the nearest $10.

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

A friend of yours would like you to lend him $5,000 today to be paid back in 5 annual payments.What would be the equal annual end-of-year payment on this loan if you charge your friend 7% interest?

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.

What is the present value of $27 received at the end of each year for five years? Assume a discount rate of 9%.The first payment will be received one year from today (round to the nearest $1) .

You wish to purchase a condo at a cost of $175,000.You are able to make a down payment of $35,000 and will borrow $140,000 for 30 years at an interest rate of 7.25%.How much is your monthly payment? To solve this problems with an EXCEL spreadsheet,you would enter

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? Year Amount 0 $0 1 $1,250 2 $1,585 3 $1,750 4 $2,225 5 $3,450

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

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

A loan amortization schedule provides a breakdown of loan payments into principal and interest payments.