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Exam 4: Time Value of Money

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Question 71

Multiple Choice

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Suppose you earned a $275,000 bonus this year and invested it at 8.25% per year.How much could you withdraw at the end of each of the next 20 years?

A) $28,532
B) $29,959
C) $31,457
D) $33,030
E) $34,681

F) All of the above
G) D) and E)

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Question 72

Multiple Choice

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After receiving a reward for information leading to the arrest of a notorious criminal,you are considering investing it in an annuity that pays $5,000 at the end of each year for 20 years.You could earn 5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

A) $50,753
B) $53,424
C) $56,236
D) $59,195
E) $62,311

F) C) and E)
G) A) and E)

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Question 73

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When a loan is amortized,a relatively low percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage increases in the loan's later years.

Your aunt wants to retire and has $375,000.She expects to live for another 25 years,and she also expects to earn 7.5% on her invested funds.How much could she withdraw at the beginning of each of the next 25 years and end up with zero in the account?

Time lines can be constructed in situations where some of the cash flows occur annually but others occur quarterly.

What is the present value of the following cash flow stream at a rate of 6.25%?

Cochrane Associate's net sales last year were $525 million.If sales grow at 7.5% per year,how large (in millions) will they be 8 years later?

Your cousin will sell you his coffee shop for $250,000,with "seller financing," at a 6.0% nominal annual rate.The terms of the loan would require you to make 12 equal end-of-month payments per year for 4 years,and then make an additional final (balloon) payment of $50,000 at the end of the last month.What would your equal monthly payments be?

You are considering investing in a bank account that pays a nominal annual rate of 7%,compounded monthly.If you invest $3,000 at the end of each month,how many months will it take for your account to grow to $150,000?

You are considering two equally risky annuities,each of which pays $25,000 per year for 10 years.Investment ORD is an ordinary (or deferred) annuity,while Investment DUE is an annuity due.Which of the following statements is CORRECT?

Your bank account pays an 8% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?

Your bank offers a savings account that pays 3.5% interest,compounded annually.If you invest $1,000 in the account,then how much will it be worth at the end of 25 years?

How much would Roderick have after 6 years if he has $500 now and leaves it invested at 5.5% with annual compounding?

The payment made each period on an amortized loan is constant,and it consists of some interest and some principal.The closer we are to the end of the loan's life,the greater the percentage of the payment that will be a repayment of principal.

Suppose you are buying your first home for $145,000,and you have $15,000 for your down payment.You have arranged to finance the remainder with a 30-year,monthly payment,amortized mortgage at a 6.5% nominal interest rate,with the first payment due in one month.What will your monthly payments be?

When a loan is amortized,a relatively high percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage declines in the loan's later years.

A $250,000 loan is to be amortized over 8 years,with annual end-of-year payments.Which of these statements is CORRECT?

You have just purchased a U.S.Treasury bond for $747.25.No payments will be made until the bond matures 5 years from now,at which time it will be redeemed for $1,000.What interest rate will you earn on this bond?

You have $5,000 invested in a bank that pays 3.8% annually.How long will it take for your funds to triple?

Wildwoods,Inc.earned $1.50 per share five years ago.Its earnings this year were $3.20.What was the growth rate in earnings per share (EPS) over the 5-year period?