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Exam 5: Time Value of Money 2: Analyzing Annuity Cash Flows

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Question 61

Multiple Choice

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Isaac realizes that he charged too much on his credit card and has racked up $5,000 in debt.If he can pay $225 each month and the card charges 17.55 percent APR (compounded monthly) ,how long will it take him to pay off the credit card?

A) 19.14 months
B) 21.77 months
C) 22.62 months
D) 27.07 months

E) A) and D)
F) A) and C)

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Question 62

Multiple Choice

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What is the present value of a $500 deposit in year 1,and another $100 deposit at the end of year 4 if interest rates are 5 percent?

A) $480.00
B) $493.62
C) $558.46
D) $582.27

E) A) and B)
F) All of the above

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Question 63

Multiple Choice

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What is the present value,when interest rates are 10 percent,of a $75 payment made every year forever?

Given a 7 percent interest rate,compute the present value of deposits made in years 1,2,3,and 4 of $1,000,$1,200,$1,500,and $1,500.

Your current $155,000 mortgage calls for monthly payments over 25 years at an annual interest rate of 6 percent.If you pay an additional $50 each month beginning with the first payment,how much interest expense do you save by pre-paying?

Given an 8 percent interest rate,compute the year 7 future value if deposits of $1,500 and $2,500 are made in years 2 and 3,respectively,and a withdrawal of $2,000 is made in year 5.

Consider that you are 30 years old and have just changed to a new job.You have $91,000 in the retirement plan from your former employer.You can roll that money into the retirement plan of the new employer.You will also contribute $4,800 each year into your new employer's plan.If the rolled-over money and the new contributions both earn a 7 percent return,how much should you expect to have when you retire in 38 years?

You started your first job after graduating from college.Your company offers a retirement plan for which the company contributes 50 percent of what you contribute each year.You expect to contribute $2,000 per year from your salary.You decide to invest the contributions in assets that you expect to earn 10 percent per year.If you plan to retire in 40 years,how big will you expect that retirement account to be?

You have reviewed your budget and determine that the most you can afford on a car loan is $455 per month.What is the most you can borrow if interest rates are 7 percent and you can pay the loan over four years?

Compute the present value of a $2,500 deposit in year 4 and another $10,000 deposit at the end of year 8 if interest rates are 15 percent.

Many people who want to start investing for their future want to start today,which implies an annuity stream that is paid at the beginning of the period.Beginning-of-period cash flows are referred to as

Your firm needs to buy additional physical therapy equipment that costs $35,000.The equipment manufacturer will give you the equipment now if you will pay $8,000 per year for the next five years.Assume your firm can borrow at a 3 percent interest rate.You need to analyze if your firm should pay the manufacturer the $35,000 now or accept the five-year annuity offer of $8,000.Which of the following statements is correct?

A perpetuity pays $100 per year and interest rates are 6.5 percent.How much would its value change if interest rates increased to 9 percent?

What annual interest rate would you need to earn if you wanted a $1,250 per month contribution to grow to $65,000 in three years?

What annual interest rate would you need to earn if you wanted a $500 per month contribution to grow to $27,050 in four years?

Compounding monthly versus annually causes the interest rate to be effectively higher,and thus the future value

Payday loans are very short-term loans that charge very high interest rates.You can borrow $500 today and repay $550 in ten weeks.What is the compound annual rate implied by this 10 percent rate charged for only ten weeks?

Loan amortization schedules show

You just bought a new home and have a 30-year mortgage with monthly payments.Which statement regarding your mortgage is correct?

Your credit rating and current economic conditions will determine