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Exam 14: Time Value of Money

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Question 31

Multiple Choice

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How long will it take an investment of $25,000 at 6% compounded annually to accumulate to a total of $35,462.50?

A) 4 years
B) 5 years
C) 6 years
D) 2 years
E) 10 years

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

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Question 32

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The present value of $5,000 per year for three years at 12% compounded annually is $12,009.

A) True
B) False

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Question 33

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Big League Sports borrowed $883,212 and must make annual year-end payments of $120,000 each.If the applicable interest rate is 6%, how many years will it take Big League Sports to pay off the loan?

An individual is planning to set-up an education fund for her children.She plans to invest $10,000 annually at the end of each year.She expects to withdraw money from the fund at the end of 10 years and expects to earn an annual return of 8%.What will be the total value of the fund at the end of 10 years?

Explain the concept of the future value of an annuity.

Sam has a loan that requires a single payment of $4,000 at the end of three years.The loan's interest rate is 6%, compounded semiannually.How much did Sam borrow?

An annuity is a series of equal payments occurring at equal intervals.

Sandra has a savings account that is now $50,000.She started with $28,225 and earned interest at 10% compounded annually.It took five years to accumulate the $50,000.

A company is setting aside $21,354 today and wishes to have $30,000 at the end of three years for a down payment on a piece of property.What interest rate must the company earn?

Explain the concept of the present value of a single amount.

A company has $50,000 today to invest in a fund that will earn 7%.How much will the fund contain at the end of eight years?

Jon Shear expects an investment of $25,000 to return $6,595 annually.His investment is earning 10% per year.How many annual payments will he receive?

A company is considering an investment that will return $20,000 at the end of each semiannual period for four years.If the company requires an annual return of 10%, what is the maximum amount it is willing to pay for this investment?

What amount can you borrow if you make six quarterly payments of $4,000 at a 12 % annual rate of interest?

Troy has $105,000 now.He has a loan of $175,000 that he must pay at the end of five years.He can invest his $105,000 at 10% interest compounded semiannually.Will Troy have enough to pay his loan at the end of the five years?

Explain the concept of the present value of an annuity.

The number of periods in a present value calculation can only be expressed in years.