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

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Question 1

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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?

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a.n=8,i=5,PV=0,PMT=-...

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Question 2

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Consider the following cash flows: Date Cash Received Amount of Cash 1/1/15 $100 1/1/16 $100 1/1/17 $500 1/1/18 $100 What is the value on 1/1/14 of the above cash flows? Use an 8% discount rate,and round your answer to the nearest $1.00.

A) $649
B) $601
C) $740
D) $800

E) None of the above
F) A) and B)

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Question 3

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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.

You have borrowed $70,000 to buy rental property.You plan to make monthly payments over a 15-year period.The bank has offered you a 9% interest rate compounded monthly.Calculate the principal paid to the bank in month two of the loan.Assume end-of-period payments.

An investment will pay $500 in three years,$700 in five years,and $1,000 in nine years.If the annual interest rate is 6%,what is the present value of this investment?

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.

Ronald Slump purchased a real estate investment with the following end-of-year cash flows: Year EOY Cash Flow 1 $200 2 $-350 3 $-430 4 $950 What is the present value of these cash flows if the appropriate discount rate is 20%?

You have just received an endowment of $32,976.You plan to put the entire amount in an account earning 8 percent compounded annually and to withdraw $4000 at the end of each year.How many years can you continue to make the withdrawals?

You want to travel to Europe to visit relatives when you graduate from university 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 high interest account,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?

You are saving money to buy a house.You will need $7,473.50 to pay the deposit.If you can deposit $500 per month in a savings account which pays 1% per month,how long will it take you to save the $7,473.50?

What is the present value of an investment that pays $10,000 every year at year-end for the next five years and $15,000 every year at year-end for years six through 10? The annual rate of interest for the investment is 9%.

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

Your parents are planning to retire to Tweed Heads,NSW in 20 years.Currently,the typical house that pleases your parents costs $200,000,but they expect inflation to increase the price of the house at a rate of 4% over the next 20 years.To buy a house upon retirement,what must they save each year in equal annual end-of-year deposits if they can earn 10% annually?

What is the value today of an investment that pays $500 every year at year-end during the next 15 years if the annual interest rate is 9%?

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?

What is the present value of the following uneven stream of cash flows? Assume a 6% discount rate and end-of-period payments.Round to the nearest whole dollar. Year Cash Flow 1 $3,000 2 $4,000 3 $5,000

To evaluate and compare investment proposals,we must adjust all cash flows to a common date.

You have borrowed $70,000 to buy a speedboat.You plan to make monthly payments over a 15-year period.The bank has offered you a 9% interest rate,compounded monthly.Create an amortisation schedule for the first two months of the loan.

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

An ordinary annuity involves depositing or investing a single sum of money and allowing it to grow for a certain number of years.