FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 4: Time value of money

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 71

Multiple Choice

Review LaterAdd Note

Review Later

An uncle of yours who is about to retire wants to sell some of his stock and buy an annuity that will provide him with income of $50, 000 per year for 30 years, beginning a year from today.The going rate on such annuities is 7.25%.How much would it cost him to buy such an annuity today?

A) $574, 924
B) $605, 183
C) $635, 442
D) $667, 214
E) $700, 575

F) B) and D)
G) A) and B)

Correct Answer

verified

Show Answer

Question 72

Multiple Choice

Review LaterAdd Note

Review Later

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?

A) 15.54%
B) 16.36%
C) 17.18%
D) 18.04%
E) 18.94%

F) D) and E)
G) A) and D)

Correct Answer

verified

Show Answer

Question 73

True/False

Review LaterAdd Note

All other things held constant, the present value of a given annual annuity decreases as the number of periods per year increases.

Disregarding risk, if money has time value, it is impossible for the future value of a given sum to exceed its present value.

What is the PV of an ordinary annuity with 5 payments of $4, 700 if the appropriate interest rate is 4.5%?

Ten years ago, Kronan Corporation earned $0.50 per share.Its earnings this year were $2.20.What was the growth rate in earnings per share (EPS) over the 10-year period?

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

You are in negotiations to make a 7-year loan of $25, 000 to DeVille Corporation.To repay you, DeVille will pay $2, 500 at the end of Year 1, $5, 000 at the end of Year 2, and $7, 500 at the end of Year 3, plus a fixed but currently unspecified cash flow, X, at the end of each year from Year 4 through Year 7.You are confident the payments will be made, since DeVille is essentially riskless.You regard 8% as an appropriate rate of return on a low risk but illiquid 7-year loan.What cash flow must the investment provide at the end of each of the final 4 years, that is, what is X?

Julian and Jonathan are twin brothers (and so were born on the same day) .Today, both turned 25.Their grandfather began putting $2, 500 per year into a trust fund for Julian on his 20th birthday, and he just made a 6th payment into the fund.The grandfather (or his estate's trustee) will make 40 more $2, 500 payments until a 46th and final payment is made on Julian's 65th birthday.The grandfather set things up this way because he wants Julian to work, not be a "trust fund baby, " but he also wants to ensure that Julian is provided for in his old age. Until now, the grandfather has been disappointed with Jonathan and so has not given him anything.However, they recently reconciled, and the grandfather decided to make an equivalent provision for Jonathan.He will make the first payment to a trust for Jonathan today, and he has instructed his trustee to make 40 additional equal annual payments until Jonathan turns 65, when the 41st and final payment will be made.If both trusts earn an annual return of 8%, how much must the grandfather put into Jonathan's trust today and each subsequent year to enable him to have the same retirement nest egg as Julian after the last payment is made on their 65th birthday?

Your friend offers to pay you an annuity of $2, 500 at the end of each year for 3 years in return for cash today.You could earn 5.5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

The greater the number of compounding periods within a year, then (1)the greater the future value of a lump sum investment at Time 0 and (2)the smaller the present value of a given lump sum to be received at some future date.

All other things held constant, the present value of a given annual annuity increases as the number of periods per year increases.

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

Your sister paid $10, 000 (CF at t = 0) for an investment that promises to pay $750 at the end of each of the next 5 years, then an additional lump sum payment of $10, 000 at the end of the 5th year.What is the expected rate of return on this investment?

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?

Your father is considering purchasing an annuity that pays $5, 000 at the beginning of each year for 5 years.He could earn 4.5% on his money in other investments with equal risk.What is the most he should pay for the annuity?

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.

What is the PV of an ordinary annuity with 10 payments of $2, 700 if the appropriate interest rate is 5.5%?

Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?

What's the present value of a perpetuity that pays $250 per year if the appropriate interest rate is 5%?